Wrap Text
Unaudited consolidated results for the six months ended 31 August 2015
HUGE GROUP LTD
(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 2015
HIGHLIGHTS
- Huge Telecom’s fixed-wireless combination of GSM and fixed-
cellular routing is starting to gain traction as a substitute for
fixed-copper landlines;
- Huge Telecom’s growing distribution network of active Business
Partners is expanding its indirect sales force rapidly;
- Revenue - 8% higher than the previous comparable period being the
6 months ended 31 August 2014;
- Operating profit – 58% higher than the previous comparable period;
and
- Declaration of interim dividend.
The board of directors ("the Board") of Huge is pleased to present
the unaudited interim results of the Company and its subsidiary
companies and joint venture (“the Group”) for the six months ended 31
August 2015.
UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited
31 August 31 August 28 February
2015 2014 2015
(6 months) (6 months) (12 months)
R’000 R’000 R’000
Total revenue 106 999 98 961 204 589
Gross profit 44 544 41 020 80 939
Other income 553 890 1 068
Operating expenses (31 027) (33 028) (66 074)
Operating profit 14 070 8 882 15 933
Investment income 24 359 621
Net change in fair
value of financial
instruments - 1 562 3 319
Share of (losses) /
earnings from equity
accounted investments (13) 26 11
Finance costs (2 303) (1 359) (2 700)
Profit before
taxation 11 777 9 470 17 184
Income tax credit /
(expense) 805 (2 074) (5 933)
Net profit for the
period 12 582 7 396 11 251
Non-controlling
interest 25 13 (274)
Net profit
attributable to
owners of the company 12 557 7 383 11 525
Basic earnings per
share (cents) 12.40 9.20 12.80
Adjusted for:
Profit on disposal of
property, plant and
equipment (0.04) - (0.02)
Reversal of
impairment (2.96) - -
Headline earnings per
share (cents) 9.40 9.20 12.78
Total number of
shares in issue
(‘000) 101 901 80 255 101 901
Weighted number of
shares in issue
(‘000) 101 255 80 255 90 041
UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited Unaudited Audited
31 August 31 August 28 February
2015 2014 2015
(6 months) (6 months) (12 months)
R’000 R’000 R’000
ASSETS
Property, plant and
equipment 50 584 42 133 46 085
Goodwill 215 153 215 153 215 153
Intangible assets 4 922 2 130 2 298
Investment in joint
venture 701 729 714
Deferred tax 6 984 11 303 3 333
Deferred expenditure 4 972 - 4 444
283 316 271 448 272 027
CURRENT ASSETS
Inventories 1 661 876 1 025
Trade and other
receivables 35 511 76 991 34 860
Derivative margin
deposits - 4 874 -
Deferred expenditure 8 205 7 417 6 825
Cash and cash
equivalents 1 186 4 868 4 741
46 564 95 026 47 451
Total assets 329 880 366 474 319 478
EQUITY AND
LIABILITIES
Share capital 229 323 208 411 229 323
Reserves - (482) -
Retained earnings 35 680 19 270 23 098
Equity attributable
to equity holders of
parent 265 003 227 199 252 421
Non-controlling
interest (4 076) (3 647) (4 101)
260 927 223 552 248 320
Non-current
liabilities
Finance lease
obligations 831 557 770
Deferred tax 1 103 9 381 499
1 934 9 938 1 269
Current liabilities
Interest bearing
liability 20 672 - 20 612
Loans from
shareholders - 1 161 2 757
Other financial
liabilities 835 1 273 788
Finance lease
obligations 813 539 606
Trade and other
payables 44 691 116 764 45 127
Bank overdraft 7 13 247 -
67 020 132 984 69 889
Total liabilities 68 953 142 922 71 158
Total equity and
liabilities 329 880 366 474 319 478
Number of shares in
issue (‘000) 101 901 80 255 101 901
Net asset value per
share (cents) 257.69 278.55 245.24
Net tangible asset
value per share
(cents) 40.35 7.81 30.49
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Unaudited Unaudited Audited
31 August 31 August 28 February
2015 2014 2015
(6 Months) (6 months) (12 months)
R’000 R’000 R’000
Balance at 1 March 248 320 216 156 216 156
Total comprehensive
income for the period 12 582 7 396 11 252
Issue of new shares - - 20 912
Acquisition of non-
controlling interest 25 - -
Balance at 28
February/31 August 260 927 223 552 248 320
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Unaudited Audited
31 August 31 August 28 February
2015 2014 2015
(6 months) (6 months) (12 months)
R’000 R’000 R’000
Cash flows from
operating activities 9 831 8 707 (12 251)
Cash flows from
investing activities (10 904) (11 456) (20 294)
Cash flows from
financing activities (2 489) 198 43 113
Net cash movement for
the period (3 562) (2 551) 10 568
Cash at the beginning
of the period 4 741 (5 827) (5 827)
Total cash at the end
of the period 1 179 (8 378) 4 741
SEGMENTAL REPORTING
The directors have considered the implications of IFRS 8: Operating
segments and are of the opinion that the current operations of the
Group constitute one operating segment. Resource allocation and
operational management are performed on an aggregate basis.
Performance is measured based on profit or loss before tax as shown
in internal management reports that are reviewed regularly by the
Chief Operating Decision Maker (“CODM”), who is the Group’s Chief
Executive Officer. The CODM also regularly reviews the Group
Statement of Financial Position.
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.
Any information included in this announcement that might be perceived
as a forward looking statement has not been reviewed and reported on
by the Company’s auditors in accordance with section 8.40(a) of the
JSE Limited’s Listings Requirements. Any references to post interim
period performance are based on management accounts.
ACCOUNTING POLICIES
The accounting policies applied 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 2015.
COMPANY PROFILE
Huge is an investment holding company listed on the Alternative
Exchange (“AltX”) of the JSE Limited’s Stock Exchange (“JSE”).
Huge Telecom, a wholly-owned subsidiary company of Huge and the
principal trading operation of the Group, is one of South Africa’s
leading providers of connectivity services to the small, medium and
micro enterprises enterprise (“SME”) market. It provides wireless,
GSM-based, fixed-cellular, last-mile connectivity services
(connections) for voice, messaging and data. It procures these last-
mile connectivity services from the mobile network operators (“MNOs”).
Eyeballs Mobile Advertising Proprietary Limited (“Eyeballs”), which
is 96% owned by Huge, is an application technology developer and
provider. The “Eyeballs” technology application is downloaded and
installed by recipient users on their mobile phones. The application
displays advertising and content images on the phone screen when calls
or messages are received on the recipient user’s phone.
Further investor and shareholder information is available at
www.hugegroup.com.
FINANCIAL OVERVIEW
GROUP FINANCIAL PERFORMANCE
During the period under review, Huge has increased revenue and
operating profit, improved operational efficiencies and reduced
operating expenses.
INVESTMENT HOLDING ACTIVITIES
The loan funding agreement with Afrasia Special Opportunities Fund
(Pty) Ltd (“ASOF”) for the provision of short term funding in the
amount of R20 million, has been extended for a further 12 month period,
subject to interest at a rate of prime plus 9% per annum and repayable
in one lump sum on 30 November 2016.
The Board of Directors of the Company has taken into account the rapid
growth being experienced by the Company and the various sources of
capital that are available to it in order to fund this growth. After
careful consideration, the Board is of the view that the cost of the
ASOF Funding will, on a rolling twelve month basis, be cheaper than
the cost of equivalent equity funding.
TELECOMMUNICATIONS ACTIVITIES
Huge Telecom is the Group’s principal revenue generator.
Review of operations
Distribution
Huge Telecom has continued to grow its distribution capabilities
during H1FY16. As at the date of this announcement, Huge Telecom has
in excess of 550 Business Partners.
Business Partner activity levels measured by the number of active
Business Partners increased during H1FY16 by more than 20% when
compared to H1FY15.
Market positioning
Huge Telecom’s connectivity services are distributed mainly to small
and medium enterprise (“SMEs”). Huge Telecom provides connectivity
services to over 11 000 customers. It has no more than a 1% exposure
to its single largest customer and therefore customer concentration
risk remains low.
Sales
Monthly sales of telephone lines averaged approximately 800 during
H1FY16 (H1FY15: 1 100).
Churn
Monthly churn of telephone lines averaged approximately 300 during
H1FY16 (H1FY15: 250).
Revenue
Revenue for H1FY16 is 8% higher than the revenue for H1FY15.
Billed minutes for H1FY16 are 13% higher than billed minutes for
H1FY15.
Average Revenue per User (“ARPU”), where the user is defined as an
installed telephone line, amounted to just over R600 for H1FY16.
The ratio of calls to mobile and to fixed-line numbers (where prices
to the former are higher than to the latter) for H1FY16 was 64%:36%
(H1FY15: 86%:14%).
The average selling price for a mobile minute during H1FY16 was R0.84
per minute (H1FY15: R0.87).
The average selling price for a fixed-line minute during H1FY16 was
R0.36 cents per minute (H1FY15: R0.35).
The current monthly annuity book of fixed annuity charges at 31 August
2015 amounted to R4.1m (31 August 2014: R2.9m).
Gross margins
Gross margins of 41.6% were achieved during H1FY16 (H1FY15: 41.5%).
Overheads
Operating expenses during H1FY16 amounted to R31m (H1FY15: R33m).
Employee expenses during H1FY16 amounted to R21.2m (H1FY15: R21.2m).
Depreciation during H1FY16 amounted to R4.7m (H1FY15: R4m).
MEDIA ACTIVITIES
On 8 September 2015, the Company increased its shareholding in
Eyeballs by 12% from 84% to 96% and concluded a licence agreement with
a subsidiary company of a global platform operator of Internet, e-
commerce, media and social network services.
FUTURE PROSPECTS
INVESTMENT HOLDING ACTIVITIES
On 30 October 2015, the Company announced the signature of a Memorandum
of Agreement relating to the proposed acquisition of CentraCom
Proprietary Limited for a consideration of R81.6m, which consideration
will be satisfied through the issue of Huge Group shares at an issue
price yet to be determined.
The board of directors of Huge is committed to pursuing further smart
acquisitions aggressively, which will enhance future potential earning
prospects.
TELECOMMUNICATIONS ACTIVITIES
Undoubtedly, a huge portion of Huge Telecom’s intrinsic value can be
found in its distribution capability. Huge Telecom continues to grow
the number of Business Partners impacting revenue and profitability
positively.
The subscriber value associated with Huge Telecom’s base of installed
telephone lines also continues to grow and underpins the value of a
Huge ordinary share.
Huge Telecom has built and, more importantly, owns and controls the
“last-mile” network or local loop between each of its customers and a
number of the mobile network operators. As many commentators suggest,
the last-mile or local loop is the most valuable part of a network
and the fight over the unbundling of Telkom SOC Limited’s local loop
in respect of its fixed-copper (or landline) last-mile is testimony
to this fact. With the total cost of installing a subscriber telephone
line at about R5 000, the value of Huge Telecom’s last-mile network
is substantial.
The Huge Telecom fixed-wireless last-mile (which combines GSM and
fixed cellular routing (“FCR”) technology) is a substitute for
traditional fixed-copper (or landline) infrastructure.
MEDIA ACTIVITIES
The board of directors of Huge and of Eyeballs are of the opinion that
the conclusion by Eyeballs of its first licence agreement marks a
change in the fortunes of Eyeballs. The licensee is a subsidiary of a
global company that has the balance sheet and reach to ensure the
successful commercialisation of the technology, including the
generation of advertising revenue. In addition, the conclusion of the
licence agreement allows Eyeballs to demonstrate the value of the
technology to other potential licensees.
TREASURY SHARES
As at 31 August 2015, the Company has 110 901 443 ordinary shares in
issue. 9 646 926 ordinary shares are held by Huge Telecom in treasury,
resulting in a net 101 254 517 listed ordinary shares.
LEGAL AND REGULATORY REQUIREMENTS
The Company is currently party to the following litigation:
Arbitration
Dispute between Huge Group and Telemasters Proprietary Limited
(“Telemasters”)
During February 2013 Telemasters cancelled an agreement with Huge
Group for the supply of MTN airtime and suspended the SIM cards held
by the Company.
In its Statement of Claim issued on 31 May 2013, Telemasters alleges
that the Company is indebted to it in the amount of R4.176m plus
interest thereon.
In its Plea and Counterclaim issued on 11 June 2014, the Company
claims that Telemasters is indebted to it in the amount of R4.392m
plus interest thereon in respect of amounts overcharged by Telemasters
and which is made up as follows:
- R1.215m in respect of “Itemised Billing” for which it was not
entitled to charge;
- R1.034m in respect of “Administration Fees” for which it was not
entitled to charge;
- R4.053m in respect of “Gross Out of Bundle Charges” for which it
was not entitled to charge.
In November 2012, Telemasters admitted that it had overcharged Huge
and credited the Company with an amount of approximately R1.910m. In
the result, Huge alleges that Telemasters is indebted to the Company
in the amount of R4.392m, being the R6.302m less the credit of R1.910m
already passed by Telemasters, as indicated above.
Huge Group is claiming an amount of R2.674m from Telemasters, being
the R4.932m less an amount of R1.718m (of the R4.176m) that Telemasters
was entitled to raise against Huge Group.
The matter will be subject to arbitration by the Arbitration
Foundation of Southern Africa. The assets and liabilities relating to
this dispute have been recognised at levels appropriate to the
Company’s assessment of the outcome of the arbitration hearing. A date
has not yet been set for the arbitration hearing.
Pro-Active Monitoring of Financial Statements
On 21 February 2013, the Company received a letter from the JSE
Limited, instructing the Company to restate its 2010, 2011 and 2012
Annual Financial Statements (the “Relevant Financial Statements”) in
so far as this related to the accounting by the Company for the
acquisition of certain single stock futures contracts (“SSFs”) (the
“Restatement Decision”).
The Company is in possession of unqualified audit reports relating to
the Relevant Financial Statements on the basis that the accounting
policy in respect of the accounting for the SSFs has resulted in fair
presentation and is in accordance with IFRS.
There has been protracted correspondence between the Company and the
JSE in this regard, culminating in the Company instituting an action
in the Gauteng Local Division of the High Court of South Africa, for
the judicial review of, amongst other things, the JSE’s Restatement
Decision, on the basis that the Restatement Decision constitutes
administrative action that is reviewable in terms of section
6(2)(e)(iii) of the Promotion of Administrative Justice Act, 2 of
2000. The matter has not as yet been set down for hearing.
Other litigation
The Company and Group engage in a certain level of litigation in the
ordinary course of business. The directors have considered all pending
and current litigation and are of the opinion that, unless
specifically provided, none of these will result in a loss to the
Group. All significant litigation which the directors believe may
result in a possible loss has been disclosed.
SUBSEQUENT EVENTS
Subsequent to 31 August 2015 and on 30 October 2015, the Company
announced the signature of a Memorandum of Agreement with the vendors
of CentraCom Proprietary Limited, with a view to acquiring 100% of
the issued share capital of CentraCom Proprietary Limited.
Other than as disclosed in this announcement, there are no events
subsequent to 31 August 2015 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
There were no changes to the board of directors of the Company during
the six months ended 31 August 2015.
DIVIDENDS
A gross dividend of 4 cents per share was declared on 29 May 2015,
and paid on 6 July 2015.
Interim dividend
Notice is hereby given that the directors have declared an interim
gross dividend of 4 cents per ordinary share (2014: nil), payable out
of the income reserves for the six months ended 31 August 2015 to the
ordinary shareholders in accordance with the timetable below.
Timetable:
Declaration date Friday, 27 November 2015
Last day to trade with dividend Thursday, 17 December 2015
Shares commence trading ex-dividend Friday, 18 December 2015
Record date Thursday, 24 December 2015
Dividend payment date Monday, 28 December 2015
In terms of South African dividends tax, the following additional
information is disclosed:
Local divided withholding rate 15%
Net local dividend payable to 3.4 cents per ordinary
shareholders who are not exempt from share
dividends withholding tax
Total number of ordinary shares in issue 110 961 443
Company income tax reference number 9378909155
Share certificates may not be dematerialised or rematerialised between
Friday, 18 December 2015 and Thursday, 24 December 2015, both days
inclusive.
GOVERNANCE
The Group recognises the need to conduct its business with integrity,
transparency and equal opportunity, and subscribes to good corporate
governance as set out in the King III Report on Corporate Governance.
Johannesburg
27 November 2015
Designated Adviser
Stellar Advisers Proprietary Ltd
Level P3, Oxford Corner, cnr Jellicoe and Oxford Road, Rosebank,
Johannesburg
Registered office:
1st Floor, East Wing, 146a Kelvin Drive, Woodmead, Johannesburg, 2191
(PO Box 16376, Dowerglen, 1610)
Transfer Secretaries
Computershare Investor Services Proprietary Ltd
Ground Floor, 70 Marshall Street, Johannesburg
Directors:
VM Mokholo* (Chairman), SP Tredoux* (Lead Independent Director), DR
Gammie*, AD Potgieter*, JC Herbst (Chief Executive Officer), D
Deetlefs (Group Financial Director)
*Non-executive
Date: 27/11/2015 02:10:00 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.
Sharenet Sites 
