Wrap Text
Unaudited Consolidated Results for the six months ended 31 August 2013
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
2013
HIGHLIGHTS FOR THE PERIOD
The Company?s operating performance metrics continue to improve.
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 2013.
UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited
31 August 31 August 28 February
2013 2012 2013
(6 months) (6 months) (12 months)
R R R
Total revenue 106 698 288 155 924 806 266 321 277
Gross profit 46 234 498 37 935 877 79 049 591
Other income 1 420 948 740 084 1 181 983
Operating
expenses (39 367 791) (34 595 357) (81 453 815)
Operating
profit/ (loss) 8 287 655 4 080 604 (1 222 241)
Investment
income 327 800 433 098 1 311 007
Net change in
fair value of
financial
instruments (1 341 444) 3 770 875 (6 076 548)
Share of
earnings
/(losses) from
equity
accounted
investments (10 251) 93 269 67 063
Finance costs (1 209 546) (2 212 505) (3 705 033)
Profit/(loss)
before
taxation 6 054 214 6 165 341 (9 625 752)
Income tax
credit /
(expense) (2 843 006) 2 359 146 (2 263 838)
Net
profit/(loss)
for the period 3 211 208 8 524 487 (11 889 590)
Non-
controlling
interest (453 630) (446 699) (2 018 426)
Net
profit/(loss)
attributable
to owners of
the company 3 664 838 8 971 186 (9 871 164)
Basic earnings
/ (loss) per
share (cents) 4.11 9.95 (11.00)
Adjusted for:
Impairment of
investment in
associate
company - 0.08 6.90
Impairment of
fixed assets 0.01 - -
Legal
settlements 1.95 - -
Headline
earnings /
(loss) per
share (cents) 6.07 10.03 (4.10)
Total number
of shares in
issue („000) 89 255 89 255 89 255
Weighted
number of
shares in
issue („000) 89 255 90 160 89 672
UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited Unaudited Audited
31 August 31 August 28 February
2013 2012 2013
(6 months) (6 months) (12 months)
R R R
ASSETS
Property, plant and
equipment 33 604 828 33 116 994 32 489 579
Goodwill 215 153 482 215 153 482 215 153 482
Intangible assets 5 693 057 12 866 618 3 243 525
Investment in joint
venture 674 467 655 499 629 293
Investments 188 114 387 986 298 630
Deferred tax 12 287 244 16 865 096 15 755 915
267 601 192 279 045 675 267 570 424
CURRENT ASSETS
Inventories 4 747 177 3 894 490 5 742 244
Trade and other
receivables 67 935 275 56 647 369 70 823 341
Loans to associate
companies 366 830 - -
Shareholders? loans 806 263 402 215 -
Current tax
receivable - - 164 405
Derivative margin
deposits 7 147 375 18 091 467 8 120 747
Cash and cash
equivalents 4 638 173 6 351 119 9 963 189
85 641 093 85 386 660 94 813 925
Total assets 353 242 285 364 432 335 362 384 349
EQUITY AND
LIABILITIES
Share capital 213 361 059 213 361 154 213 361 060
Reserves (1 074 561) (1 074 561) (1 074 561)
Retained earnings 4 292 597 19 470 108 627 759
Equity attributable
to equity holders of
parent 216 579 095 231 756 701 212 914 258
Non-controlling
interest (3 593 552) (1 568 194) (3 139 922)
212 985 543 230 188 507 209 774 336
Non-current
liabilities
Finance lease
obligations 182 038 577 584 308 582
Deferred tax - 4 045 683 7 595 942
Investment in
associate 55 274 - -
237 312 4 623 267 7 904 524
Current liabilities
Loans from
shareholders - 1 189 031 410 664
Other financial
liabilities - 537 651 903 725
Finance lease
obligations 219 393 37 687 213 163
Trade and other
payables 127 128 086 115 404 027 128 350 547
Bank overdraft 12 671 951 12 452 165 14 827 390
140 019 430 129 620 561 144 705 489
Total liabilities 140 256 742 134 243 828 152 610 013
Total equity and 353 242 285 364 432 335 362 384 349
liabilities
Number of shares in
issue („000) 89 255 89 255 89 255
Net asset value per
share (cents) 238.63 257.90 235.03
Net tangible asset
value per share
(cents) (8.81) 2.43 (9.66)
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Unaudited Unaudited Audited
31 August 31 August 28 February
2013 2012 2013
(6 months) (6 months) (12 months)
R R R
Balance at 1 March 209 774 336 222 707 448 222 707 448
Total comprehensive
income / (loss) for
the period 3 211 208 8 524 487 (11 889 590)
Purchase of own
shares - (1 043 428) (1 043 522)
Balance at 28
February/31 August 212 985 544 230 188 507 209 774 336
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Unaudited Audited
31 August 31 August 28 February
2013 2012 2013
(6 months) (6 months) (12 months)
R R R
Cash flows from
operating activities 1 561 436 (2 508 695) 10 368 769
Cash flows (used in)/from
investing activities (2 900 710) 1 789 272 (2 812 683)
Cash flows from
financing activities (1 830 303) (5 393 626) (5 511 115)
Net cash movement for
the period (3 169 577) (6 113 049) 2 004 971
Cash at the beginning
of the period (4 864 201) 12 003 (6 869 172)
Total cash at the end
of the period (8 033 778) (6 101 046) (4 864 201)
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 which are 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”); 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 106 698 288 - - 106 698 288
Gross profit 46 234 498 - - 46 234 498
Other income 857 603 - 563 345 1 420 948
Operating
expenses (37 972 482) (440 648) (954 661) (39 367 791)
Operating
profit/(loss) 9 119 619 (440 648) (391 317) 8 287 655
Investment
income 128 940 - 198 860 327 800
Net change in
fair value of
financial
instruments (426 378) - (915 066) (1 341 444)
Loss from
equity (10 251) - - (10 251)
accounted
investments
Finance costs (1 028 296) (15 229) (166 021) (1 209 546)
Profit/(loss)
before income
tax 7 783 634 (455 877) (1 273 543) 6 054 214
Income tax
credit/
(expense) (3 329 355) - 486 349 (2 843 006)
Profit after
income tax 4 454 279 (455 877) (787 194) 3 211 208
COMMENTARY
BASIS OF PREPARATION
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 the 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 28 February 2013. The results have been prepared by
the financial director, Mr D. Deetlefs.
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 “Connectivity Services Providers”. It provides wireless,
GSM-based, fixed-cellular, last-mile connectivity services
(connections) for voice, messaging, and data. It procures these
last-mile connectivity services on a wholesale cost-plus basis from
the mobile network operators (“MNOs”).
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. Subsequent to 28 February
2013, a decision was made to cease the development activities
carried out by Eyeballs. The marketing of the Eyeballs application
software will in future be undertaken by Huge Telecom on behalf of
that company.
Further investor and shareholder information is available at
www.hugegroup.com.
FINANCIAL OVERVIEW
GROUP FINANCIAL PERFORMANCE
Huge continues to improve operational efficiencies and contain
costs.
INVESTMENT HOLDING ACTIVITIES
Huge Group's investment holding activities, including treasury
management, are mandated to maximise the financial position of the
Group in the debt and equity markets using cash and derivative-based
instruments.
For each of the last seven annual general meetings (“AGMs”) of the
Company, shareholders have passed the necessary special resolutions
granting the directors of the Company a general authority to acquire
the ordinary shares of the Company. The most recent of these AGMs
was held on Friday, 12 July 2013.
The Company has not acquired any of its own shares between 28
September 2012 (the date of its previous AGM) and 12 July 2013 (the
date of its most recent AGM) nor has it acquired any shares between
the date of its most recent AGM and the date of this announcement.
At the beginning of the 2014 financial year that commenced on 1
March 2013, the Company had a total of 100 512 495 ordinary shares
in issue.
At the beginning of the 2014 financial year the Group held 11 257
978 ordinary shares as treasury shares. 1 551 052 ordinary shares
were held by the Company and 9 706 926 ordinary shares were held by
Huge Telecom.
In terms of the new Companies Act any shares of a company
repurchased by it are returned to authorised share capital as
unissued shares automatically and are not regarded as being held as
treasury shares.
The 9 706 926 ordinary shares held by Huge Telecom affords the
Company the future prospect of reducing 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 2013
showed a decrease of 31.6% to R106.7 million, from the R156.0
million generated during the six months to the end of August 2012.
At Huge Telecom there is a significant time delay in the revenue
effect of sales activity (where an increasing sales activity is a
function of maximising customer acquisition and minimising customer
churn). This time delay is about twelve months. In other words,
the revenue recorded in the current six month period is a function
of the sales activity in the six month period, twelve months ago.
In the past twelve months Huge Telecom has experienced net churn of
approximately 600 connections (or telephone lines).
Notwithstanding the declines in revenue noted above, Huge Telecom's
revenue indicators (in the form of sales activity indicators) have
turned with the various trend-lines pointing up. In the six months
from 1 March 2013 to 31 August 2013 (the current reporting period),
Huge Telecom acquired in excess of 500 new clients and grew net
connections by more than 2 100 lines. The revenue effects of this
sales activity will manifest in about 12 months? time.
In addition, for the first six months of FY14, average revenue per
trade weighted day (“ARTWD”) is higher. The trend line of ARTWD
completely flattened between August 2012 and December 2012. Since
December 2012, ARTWD has improved steadily, which indicates that
Huge Telecom has arrested the declining trend in revenue.
In the last twelve months Huge Telecom has also experienced a
substitution of higher revenue, lower margin clients for lower
revenue, higher margin clients and this has also exacerbated the
extent of the decline in revenue.
Huge Telecom remains committed to pursuing higher margin business
and increasing its revenues.
Huge Telecom has also been successful in improving its fixed
annuity to variable annuity ratio. The fixed annuity consists of
channel management fees, on-account fees, site management fees and
line rentals, which are protected from price compression. The
current monthly annuity book of fixed annuity charges is in the
order of about R1.6 million (R1.4 million: 28 February 2013) per
month, providing a rolling profit contribution of R19.6 million per
annum.
On 1 March 2013, mobile termination rates (“MTR”) dropped from 56
cents to 40 cents. The profit and cash flow benefits were material
and immediate. 75% of Huge Telecom?s base is now wholesale, cost-
plus oriented. Accordingly, gross margins are up 78.2% when
comparing gross margins of 43.3% for the six month period to 31
August 2013 with gross margins of 24.3% for the six month period to
31 August 2012. Gross profit increased by 21.9% from R37.9 million
to R46.2 million over the comparable six month period.
In the six months from 1 March 2013 to 31 August 2013, operating
expenses increased by 13.9% from R34.6 million to R39.4 million.
This was attributable mainly to increased human resources costs and
legal fees. Huge Telecom has nevertheless continued to contain costs
and this remains a key focus area.
In the result operating profit has increased 102.4% from R4.1
million to R8.3 million.
MEDIA ACTIVITIES
Eyeballs has ceased development of its proprietary in-application
mobile phone advertising technology until marketing and sales
activities show potential.
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 losses relating to single stock futures contracts (“SSFs”) and
contracts for difference (“CFDs”) reduced Group operating
profitability by R1.3 million in the six month period ended 31
August 2013 – this compared to a profit of R3.8 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, characterised 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. The recent announcements by the Independent
Communications Authority of South Africa provide evidence in support
of this view. Wholesale price compression is good for Huge Telecom
given that wholesale price compression equates to lower input prices
and correspondingly higher profit margins.
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 on the basis
of full-suite telephony.
Huge Telecom is also able to offer better coverage than any single
MNO as it is able to supply substantially all mobile networks. In
other words, its Cell C-MTN-Vodacom coverage is better than a Cell
C, MTN or Vodacom coverage simpliciter. The power of this
aggregated service is not questionable.
The strategy set by Huge Telecom in early calendar year 2012 to
focus on indirect channels to market using Business Partners is
proving very successful. The total number of Business Partners and
the number of active Business Partners continues to increase monthly
and this is having a very positive effect on gross and net
connections (gross connections net of churn).
What is a key to revenue growth is the number of active selling
Business Partners. Business Partner activity will have a material
impact on the sale of new connections and on revenue in the future.
This continues to be the focus for FY14.
Huge Telecom is therefore upbeat about its future prospects for
revenue growth.
Huge Telecom will also continue to focus on introducing alternative
revenue streams (such as data 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.
Customer engagement by using enhanced information technology
services will become an important success factor in the future and
is on the top of the list of strategy items for the remainder of
FY14.
Media Activities
Eyeballs will continue to explore partnerships to deploy its
offerings. 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
underlying shares 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:
Disputes between Huge Telecom and MTN SP
Case Number: 2011/00962
On 18 January 2011, MTN SP instituted a notice of motion in the
South Gauteng High Court, Johannesburg, under case number
2011/00962, 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 a Court Order of the South Gauteng High Court handed
down by Mokgoatlheng, J on 20 August 2012, the matter was 1)
referred to trial; 2) the notice of motion and founding affidavit to
stand as a simple summons; 3) MTN SP was required to deliver a
declaration within one month of the court order; and 4) the costs of
the application are to be the costs in the cause of the trial
action.
On 1 October 2012, MTN SP delivered its declaration.
On 26 October 2012, Huge Telecom delivered a notice in terms of Rule
23 and Rule 30 of the Uniform Rules of Court, and on 7 December 2012
MTN SP amended its declaration. The amended declaration does not
include a prayer for the winding up of Huge Telecom.
On 20 February 2013, Huge Telecom filed its plea to MTN SP's amended
declaration.
On 19 April 2013, MTN SP delivered a replication in response to the
plea Huge Telecom filed under case number 11/962.
The matter has not as yet been set down for hearing.
Case Number: 2013/05977
On 15 February 2013, the Sheriff of the South Gauteng High Court
served a combined summons against Huge Telecom, in terms of which
MTN SP prayed for judgment against Huge Telecom for the sum of R56
020 357 plus interest and costs on the basis of a tacit agreement
being concluded between Huge Telecom and MTN SP during September
2009; alternatively on the basis of unjustifiable enrichment at the
expense of MTN SP.
On 4 March 2013, Huge Telecom filed, in the South Gauteng High
Court, a notice of intention to defend this action.
On 18 April 2013, Huge Telecom filed, in the South Gauteng High
Court, its Special Plea and its Plea, defending the action.
On 23 July 2013, MTN SP delivered a replication in response to the
Special Plea and Plea filed by Huge Telecom.
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.
The matter has not as yet been set down for hearing.
Disputes between Huge Telecom and Mr JP Kimber
The matter between Huge Telecom and Mr JP Kimber was settled by the
payment by Huge Telecom of an amount of R1.773 million. Mr Kimber
has withdrawn all actions against Huge Telecom.
Disputes between Huge Group and TeleMasters Holdings Limited
(“TeleMasters”)
TeleMasters has referred a dispute to the Arbitration Foundation of
South Africa (“AFSA”) and it is claiming payment of the amount of
R4.176 million, plus interest and costs.
AFSA have appointed Advocate Pieter Pauw SC as the arbitrator.
A pre-arbitration meeting was held at the offices of AFSA on 8
August 2013.
Huge Telecom has not, at the date of this announcement, filed its
plea and counterclaim.
SUBSEQUENT EVENTS
There are no events subsequent to 31 August 2013 and to the date of
this announcement which have had or may have a material impact on
the Company.
GOING CONCERN
The Board has undertaken a detailed review 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 Michael Ronald Beamish resigned as a non-executive director of
the Company with effect from 20 May 2013.
DIVIDENDS
No dividends were paid or declared during the six months ended 31
August 2013.
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
21 November 2013
Designated Advisor
Arcay Moela Sponsors Proprietary Limited
One Health Building, Woodmead North Office Park, 54 Maxwell Drive,
Woodmead, 2191
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*, JC Herbst (Chief Executive
Officer), D Deetlefs (Group Financial Director)
*Non-executive
Date: 21/11/2013 09:19:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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