General update and withdrawal of cautionary HUGE GROUP LIMITED (Registration number 2006/023587/06) Share code: HUG ISIN: ZAE000102042 (“Huge” or “the Group” or “the Company”) GENERAL UPDATE (INCLUDING AN UPDATE ON LITIGATION, A TRADING UPDATE AND AN UPDATE ON FUNDING) AND WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT UPDATE ON LITIGATION INVOLVING MTN SERVICE PROVIDER (PTY) LTD Shareholders are referred to the Integrated Report of the Company for the year ended 28 February 2014, wherein disclosure is made, inter alia, regarding certain litigation involving MTN Service Provider (Pty) Ltd (MTN SP). MTN SP instituted action (the Actions) against Huge Telecom for payment of R30 million, alternatively R56 020 357.49, together with interest thereon under case numbers 2011/00962 and 2013/05977 before the High Court of South Africa Gauteng Local Division, Johannesburg. The Board of Directors is pleased to announce that a settlement agreement (the Settlement Agreement) has been signed between Huge Telecom (Pty) Ltd (Huge Telecom) and Huge Mobile (Pty) Ltd (formerly CentraCell (Pty) Ltd) (the Huge Parties)and Mobile Telephone Networks (Pty) Ltd (MTN) in terms of which the Huge Parties have undertaken to pay MTN the sum of R10 million (the Settlement Amount) in full and final settlement of all claims of any nature that MTN and MTN SP may have against the Huge Parties. The Settlement Amount must be paid by Huge Telecom by no later than 15 September 2014. MTN has undertaken to file a notice removing the Actions from the trial roll by no later than 7 days after the date of the last signature to the Settlement Agreement. MTN has also undertaken to file a notice of withdrawal of the Actions by no later than 7 days after receipt of the Settlement Amount. TRADING UPDATE Five years ago, Huge Telecom (the principal operating subsidiary company of Huge) was defined as a least cost routing (LCR) service provider offering a limited (outbound mobile to mobile) service in an overcrowded market. This limited service had as its foundation the saving that could be provided to customers because of the retail price arbitrage between the cost of a Telkom to mobile telephone call and a mobile to mobile, on the network, telephone call. LCR was built on inbound supplier agreements which were of a retail reseller nature involving discounts and commissions. In July 2010, the major mobile network operators (MNOs) terminated paying connection incentive bonuses (CIBs) – the commission paid to LCR service providers to activate new subscribers on the networks of the MNOs. In Huge Telecom’s case this accounted for a material part of its gross profit generation. The removal of CIBs (which resulted in a significant margin/discount squeeze) and other regulatory changes in the SA telecommunications market resulted in a mass exodus from the market by companies providing LCR services. Most LCR service providers converted their business models to business models which involve providing voice services over fixed-line data services (or what has become known as Voice Over internet Protocol (VoIP) services in SA). This left the GSM last mile to the remaining LCR service providers, like Huge Telecom. In the last three years Huge Telecom has successfully redefined itself. It has changed its business model and pioneered a special niche in the South African telecommunications market. It has transformed itself into a high growth, high margin business. Huge (through various subsidiary companies) has secured new supplier arrangements which eliminate the possibility of margin squeeze that had previously taken place. Today, Huge Telecom provides a full outbound and inbound telephony service using a GSM last-mile solution in conjunction with fixed-cellular (or fixed wireless) customer premises equipment. In simple terms, Huge Telecom installs telephone lines where the connection is wireless and based on the GSM standard. The advantage of this type of service is that it is simple, easy to install and allows for high levels of service. Huge Telecom makes use of the networks of all the MNOs and therefore has the most extensive cellular network coverage in South Africa, whilst making use of devices that are fixed cellular in nature and is therefore able to offer an unrivalled reliable quality of service. Huge Telecom operates in partnership with over 350 resellers (or Business Partners). This distribution channel is being expanded each month and the channel has proved that it has the ability to generate consistent organic growth. Huge Telecom measures its sales activity by the number of telephone lines (often referred to as connections) that it sells (and then installs) on a monthly basis. At the end of its last financial year (28 February 2014) Huge Telecom had a base of 20 000 installed telephone lines (or connections). During the first five months of his financial year (up to 31 July 2014) Huge Telecom, through with its Business Partners, sold in excess of 5 400 telephone lines, representing an annualized growth rate over this period of around 65%. The rate of sale over this period has shown a steady increase month on month. The average contract duration for new business is now 29 months as compared to 24 months during the previous financial year. Gross margins have increased significantly in the last three years from 19.2% in the year to the end of February 2012 to 54.6% in the year to the end of February 2014. Huge Telecom currently enjoys margins of approximately 55%. Huge Telecom has significant operating leverage - management believes that for each additional rand of revenue generated, the business has the ability to deliver four times the operating profit generated by the additional rand of revenue. The business of Huge Telecom is 100% annuity based and each month’s sales (of telephone lines) and revenue is compounding in nature. With Huge Telecom’s focus on SMMEs and the dominant use of its chosen technology it has found a special niche in the market where client concentration risk is very low. No single client accounts for more than 1.7% of its revenue. The investment case for, and value of, Huge and Huge Telecom comprises the value of its subscriber base (measured by the number of installed telephone lines), its network (measured by the installed value of its customer premises equipment (CPE)) and the value of its distribution channels(measured by the number of Business Partners and the number of active Business Partners). The aforementioned values support Huge and Huge Telecom’s discounted cash flow values. The introduction of further products and services (like mobile data) to feed a product and service hungry distribution channel will serve to enhance profitability. FUNDING MATTERS Huge has recently seen significant interest from providers of debt finance to provide debt funding to Huge and as such Huge expects to shortly announce a debt funding transaction. This funding will be applied to fund the significant growth that Huge is experiencing. The rights offer of 20 million ordinary shares at 100 cents per share, announced earlier today, lends further support to Huge’s efforts to raise expansion capital. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT Shareholders are referred to the cautionary announcement dated 30 June 2014, and are advised that the cautionary is hereby withdrawn. Johannesburg 1 August 2014 Designated advisor Arcay Moela Sponsors Proprietary Limited Date: 01/08/2014 05:37:00 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.