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HUGE GROUP LIMITED - Reviewed Provisional Condensed Consolidated Annual Financial Results for the year ended 28 February 2018

Release Date: 31/05/2018 16:11
Code(s): HUG     PDF:  
Wrap Text
Reviewed Provisional Condensed Consolidated Annual Financial Results for the year ended 28 February 2018

HUGE GROUP LTD
(Registration number 2006/023587/06)
Share code: HUG ISIN: ZAE000102042
("Huge" or "the Company")

REVIEWED PROVISIONAL CONDENSED CONSOLIDATED ANNUAL FINANCIAL RESULTS FOR THE YEAR ENDED 28 FEBRUARY 2018

HIGHLIGHTS

-  Our EBITDA in the current financial year (FY2018) is 145% higher than in the prior financial year
   (FY2017) off the back of an improved EBITDA margin, which increased from 21.4% to 31.9%
-  Our operating profit in FY2018 is 168% higher than in FY2017
-  Our net profit after taxation in FY2018 is 188% higher than in FY2017

The board of directors (the Board or the Directors) of Huge is pleased to present the reviewed provisional 
condensed consolidated annual financial results of the Company, its subsidiary companies and joint
venture (the Group) for the year ended 28 February 2018.

COMPANY PROFILE

Huge is an investment holding company listed on the Main Board of the JSE Limited (the JSE).

Huge Telecom Proprietary Limited (Huge Telecom) was the principal operating entity of Huge prior to
the acquisition of Huge Connect Proprietary Limited (Huge Connect), formerly ConnectNet Broadband
Wireless Proprietary Limited (ConnectNet), and its wholly owned subsidiary company, Huge Networks
Proprietary Limited, formerly Sainet Internet Proprietary Limited (Sainet Internet). Huge Connect and
Huge Networks were acquired with effect from 30 March 2017 and Accknowledge Systems Proprietary
Limited (Accknowledge) on 30 June 2017 (the Acquisitions).

Huge Telecom is a voice connectivity or telephony services business that makes use of GSM to provide
a wireless 'last mile' connection from the customer's premises to the core of the network (the last mile
is the final connection from the core network to the customer's premises). Its principal service is
substituting fixed-line voice infrastructure, like that provided by a public switched telephone network
such as Telkom, with wireless GSM solutions. Huge Telecom has more than 15 000 customers
(representing approximately 40 000 telephone lines) which comprise corporate organisations of any size
and residential consumers, who require a fixed location voice connectivity service. Huge Telecom does
not own any core network infrastructure; rather, it leverages off the existing mobile operator networks
in South Africa.

Huge Connect is a telecommunications solutions company with a focus on growing its voice, network
and payment connectivity solutions. It was established in 2004 and provides connectivity to the card
payment terminals of merchants, payment service providers and the commercial banks in South Africa
by making use of secure, managed, dual SIM connectivity over GSM data networks. It has over 28 000
merchants as customers. The company has also expanded into other markets for payment
connectivity, including connectivity for ATMs, integrated points of sale, medical/script verifications,
telemetry applications, micro-lending applications and cash vaults.

Huge Networks is a network service provider and data communications company that markets and
sells a variety of products and services including Internet data services, managed network solutions,
branch connectivity, hosting services and website and system development.

REVIEWED PROVISIONAL CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

                                                                         Reviewed            Audited
                                                                 28 February 2018   28 February 2017
                                                                      (12 months)        (12 months)
                                                                            R'000              R'000
                
Total revenue                                                             401 382            245 993
Gross profit                                                              224 538            118 612
Other income                                                                2 580              1 247
Operating expenses                                                       (98 648)           (67 319)
EBITDA                                                                    128 470             52 540
Depreciation and Amortisation                                            (15 495)           (10 301)
Operating profit                                                          112 975             42 239
Investment income                                                           4 332                233
Share of (losses) / earnings from equity                
accounted investments                                                        (72)               (22)
Impairment of property, plant and                
equipment                                                                 (2 794)                  -
Reversal of impairment of financial assets                                  4 520                  -
Finance costs                                                            (11 036)            (5 336)
Profit before taxation                                                    107 925             37 114
Income tax credit / (expense)                                            (30 861)           (10 307)
Net profit for the period                                                  77 064             26 807
Non-controlling interest                                                      223                184
Net profit attributable to owners of the                
company                                                                    76 841             26 623
                
Basic earnings per share (cents)                                            47.40              26.30
Headline earnings per share (cents)                                         46.34              26.30
 
REVIEWED PROVISIONAL CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

                                                                      Reviewed                Audited
                                                              28 February 2018       28 February 2017
                                                                   (12 months)            (12 months)
                                                                         R'000                  R'000
              
ASSETS              
Non-current assets              
Property, plant and equipment                                         178 669                 73 222
Goodwill                                                              593 443                215 153
Intangible assets                                                       8 680                  3 927
Investment in joint venture                                               616                    688
Other financial assets                                                  7 496                      -
Deferred tax                                                           12 805                  7 551
Deferred expenditure                                                        -                 16 950
                                                                      801 709                317 491
Current assets              
Inventories                                                             1 219                    647
Trade and other receivables                                           103 299                 42 606
Deferred expenditure                                                        -                  7 694
Cash and cash equivalents                                              30 265                 70 976
                                                                      134 783                121 923
Total assets                                                          936 492                439 414
                                 
EQUITY AND LIABILITIES                                 
Share capital                                                         618 772                319 421
Retained earnings                                                     128 774                 60 361
Equity attributable to equity holders of parent                       747 546                379 782
Non-controlling interest                                              (3 016)                (3 001)
                                                                      744 530                376 781
Non-current liabilities                                 
Interest bearing liabilities                                           78 324                      -
Finance lease obligations                                               2 155                  1 331
Deferred tax                                                           30 670                  9 942
                                                                      111 149                 11 273
Current liabilities                                 
Interest bearing liabilities                                           25 535                      -
Loans from shareholders                                                     -                    178
Other financial liabilities                                               840                    753
Current tax payable                                                     9 683                  4 256
Finance lease obligations                                               1 918                  1 166
Trade and other payables                                               41 506                 35 566
Bank overdraft                                                          1 331                  9 441
                                                                       80 813                 51 360
                                 
Total liabilities                                                     191 962                 62 633
Total equity and liabilities                                          936 492                439 414
                                 
Number of shares in issue ('000)                                      175 602                125 551
Net asset value per share (cents)                                      423.99                 300.10
Net tangible asset value per share (cents)                              81.10                 125.61

REVIEWED PROVISIONAL CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

                                       Share        Share     Accumulated           Non-   Total equity
                                     capital      premium          profit    controlling
                                                                                interest
                                       R'000        R'000           R'000          R'000          R'000
Balance as at 1 March           
2016                                      10      229 313          33 738        (3 185)        259 876
Profit for the year                        -            -          26 623            184         26 807
Issue of shares                            2       90 096               -              -         90 098
Balance as at 1 March          
2017 as original          
statement                                 12      319 409          60 361        (3 001)        376 781
Early adoption of IFRS 9                   -            -         (8 428)              -        (8 428)
Balance as at 1 March          
2017 as restated                          12      319 409          51 933        (3 001)        368 353
Profit for the year                        -            -          76 841            223         77 064     
Issue of shares                            5      299 346               -              -        299 351 
Business combinations                      -            -               -          (238)          (238)
Balance as at 28                                
February 2018                             17      618 755         128 774        (3 016)        744 530

During FY2017, 14 650 000 ordinary shares were issued at 615 cents per share, amounting to R90 097 500.

During FY2018:
-  24 373 551 ordinary shares were issued at a price of 615 cents per share, amounting to R149 897 339.
-  25 208 333 ordinary shares issued on 30 March 2017 were subject to Renounceable Letters of
   Allotment and were delivered to ConnectNet at a price of 600 cents per Share, amounting to R151 249 998
   and then subsequently delivered to the existing shareholders of ConnectNet in terms of a repurchase of 
   existing ConnectNet ordinary shares.
-  468 750 ordinary shares were issued on 8 June 2017 at a price of 800 cents per share, amounting to
   R3 750 000 under a general authority to allot and issue ordinary shares for cash granted by
   shareholders at the annual general meeting held on 14 September 2016.

REVIEWED PROVISIONAL CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

                                                                      Reviewed                 Audited 
                                                              28 February 2018        28 February 2017
                                                                   (12 months)             (12 months)
                                                                         R'000                   R'000
               
Profit before taxation                                                 107 925                  37 114
Adjusted for non-cash movements                                         14 391                  15 421
Adjusted for working capital movements                                (61 985)                (22 517)
Net finance costs                                                      (5 744)                 (4 668)
Tax (paid) received                                                   (16 717)                      86
Cash flows from operating activities                                    37 870                  25 436
                
Cash flows from investing activities                
Purchase of property, plant and equipment                             (73 349)                (20 266)
Proceeds from disposal of property, plant                
and equipment                                                            4 790                      17
Purchase of intangible assets                                          (4 770)                 (5 549)
Business combinations                                                (260 580)                       -
                                                                     (333 909)                (25 798)
                
Cash flows from financing activities                
Proceeds from share issue                                              299 351                  90 098
Proceeds/(Repayment) of other financial                
liabilities                                                           (37 249)                      59
Repayment of interest bearing liabilities                                    -                (20 000)
Proceeds/(Repayment) of shareholder loans                                  721                 (1 183)
Instalment sale receipts/(payments)                                        615                 (1 759)
                                                                       263 438                  67 215
Net cash movement for the period                                      (32 601)                  66 853
Cash at the beginning of the period                                     61 535                 (5 318)
Total cash at the end of the period                                     28 934                  61 535

SEGMENTAL REPORTING

The Directors have considered 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 three main operating segments, namely a Corporate Office Grouping, a Telecom
Grouping and a Financial Technology (Fintech) Grouping. The summarised information included below
is in line with the requirements of IAS 34. The revenue generated from the products and services
provided by the various Group companies to all customers is done so on a countrywide basis, with no
geographical differentiation.

Reporting segments
In terms of Huge's segmental reporting, the Telecom Grouping comprises the following companies:
-  50.2% held Ambient Mobile Proprietary Limited, the shareholding of which is held by Huge Telecom
-  100% held Huge Cellular Proprietary Limited, the holding company of which is Huge Telecom
-  100% held Huge Networks, the holding company of which is Huge Telecom
-  100% held Huge Soho Proprietary Limited, the holding company of which is Huge
-  100% held Huge Software and Technologies Proprietary Limited, the holding company of which is Huge
-  100% held Huge Telecom, the holding company of which is Huge
-  49.66% held Le Gacy Telecom (FRA) Proprietary Limited, the shareholding of which is held by Huge Telecom

In terms of Huge's segmental reporting, the Fintech Grouping comprises the following companies:
-  Huge Connect, the holding company of which is Huge

In terms of Huge's segmental reporting, the Corporate Office Grouping comprises the following companies:
-  Huge itself
-  75% held Accknowledge Systems Proprietary Limited
-  96% held Eyeballs Mobile Advertising Proprietary Limited

                                          Reviewed   Elimination     Telecom      Fintech    Corporate
                                       28 February                  Grouping     Grouping       Office
                                              2018                                            Grouping
                                             R'000         R'000       R'000        R'000        R'000
Total revenue                              401 382             -     262 524      136 920        1 938
Gross profit                               224 538             -     126 855       96 054        1 629
Other income                                 2 580             -       1 285        1 295            -
              
Operating expenses                        (98 648)             -    (56 880)     (21 700)     (20 068)
EBITDA                                     128 470             -      71 260       75 649     (18 439)
Depreciation and              
amortisation                              (15 495)             -     (9 679)      (5 816)            -
              
Operating profit/(loss)                    112 975             -      61 581       69 833     (18 439)
              
Investment income                            4 332             -         611        2 973          748
Loss from equity             
accounted             
investments                                   (72)             -        (72)            -            -
Impairment of              
property, plant and              
equipment                                  (2 794)             -     (2 794)            -            -
             
Reversal of impairment             
of financial assets                          4 520             -                    4 520            -
Finance costs                             (11 036)             -     (1 600)         (13)      (9 423)
Profit/(loss) before             
income tax                                 107 925             -      57 726       77 313     (27 114)
Income tax             
credit/(expense)                          (30 861)             -    (13 141)     (18 703)          983
             
Profit after income tax                     77 064             -      44 585       58 610     (26 131)

                                          Audited    Elimination     Telecom      Fintech    Corporate
                                      28 February                   Grouping     Grouping       Office
                                             2017                                             Grouping
                                            R'000          R'000       R'000        R'000        R'000
Total revenue                             245 993              -     245 993            -
Gross profit                              118 612              -     118 612            -            -
Other income                                1 247        (5 913)       1 247            -        5 913
            
Operating expenses                       (67 319)           5913    (64 512)            -      (8 720)
EBITDA                                     52 540              -      55 347            -      (2 807)
Depreciation and             
amortisation                             (10 301)              -    (10 301)            -
             
Operating profit/(loss)                    42 239              -      45 046            -      (2 807)
             
Investment income                             233              -         108            -          125
Loss from equity             
accounted            
investments                                  (22)              -        (22)            -
Finance costs                             (5 336)              -     (5 310)            -         (26)
Profit/(loss) before            
income tax                                 37 114              -      39 822            -      (2 708)
Income tax            
credit/(expense)                         (10 307)              -    (11 391)            -       1 084
            
Profit after income tax                    26 807              -      28 431            -      (1 624)

COMMENTARY

REVIEW OF OPERATIONS

Overview
Over the last five years Huge has focused on growing its core mobility and connectivity business and
has scaled-up its operations significantly. Today, Huge offers a three-pronged service offering to a
substantial SME market. Route-to-market includes both direct, through Huge Connect and Huge
Networks and indirect, through a substantial and unique value-added reseller channel that resides in
Huge Telecom.

The Group refers to its community of customers as its real estate. The term reflects the value that Huge
perceives in its customers and the tangible reference to the cumulative worth of this customer network.
Huge started the financial year with 15 000 customers and ended with a real estate customer base of
circa 45 000. By way of reference, we estimate that the South African four large domestic banks are
each servicing 50 000 to 75 000 SME customers.

Metcalfe's law suggests that the community value of a network grows as the square of the number of
its users increases. If this theorem holds true, then FY2018 represents a watershed year in the 
evolution of Huge.

What have we done this year
The Acquisitions prove a defining event for the Group and represents an inflection point in the
evolutionary growth trajectory of Huge.

Firstly, Huge has historically focussed on its core, single service offering of voice connectivity and did
not operate a holding company structure. The Acquisitions necessitated the formation of a more
comprehensive and focussed Group holding company, resourced to drive the Group's expansion
aspirations. A formal group-wide strategy has now been adopted, in the Growing Huge Strategy, which
underpins and guides these expansion aspirations. The Growing Huge Strategy has five key strategic
objectives: creating a platform for growth, creating capacity for growth, improving the Group's BBBEE
profile, growing the Group organically and by acquisition and elevating the Group brand.

Secondly, the Group significantly broadened its customer real estate, which it now calls the Huge Real
Estate, and its service offerings. Huge now has a sizeable platform which it can leverage and expand
by increasingly introducing innovative product and service offerings, cross-selling and developing new
strategic partnerships.

Thirdly, consolidating Huge Connect and Huge Networks into Huge has been a key focal point for
management in FY2018. Key to the Group's on-going success will be a deep understanding of its key
asset, the customer real estate. Significant investment is currently underway to collect, analyse,
segment and understand the Group's customers. These analytics will provide the basis and
methodology for effectively creating cross-selling opportunities, whether it is related to current services
or through the development of new customised bespoke ones. It will also help direct the Group's on-
going acquisition strategy.

In addition to the Acquisitions, the Group made a significant investment into technical, regulatory and
human resources to optimise and expand its voice connectivity offering, with concomitant efficiency
and profitability improvements for Huge Telecom. This included negotiating sizeable decreases in its
variable cost base, migrating customers onto a new network and pioneering and commercialising Full
Suite Telephony (FST). These initiatives constituted significant projects in their own right, which ran
concurrently throughout the year.

The commercialisation and launch of FST in late 2017, as an example, was incubated for five years from
inception-to-prototyping, testing, development and launch. It culminated in a carefully synchronised
collaboration between network provider, distribution partners and other stakeholders to take the
service to our customer real estate. It now represents one of our biggest growth opportunities, as Huge
actively tackles the sizeable domestic voice market.

Capital
Historically, the growth of the Group has been constrained by its balance sheet limitations. The
acquisition of a strong cash flow generative business like Huge Connect and the increased size of the
Group following the Acquisitions, have greatly enhanced its debt and equity capital raising abilities.
Huge has seen its share price increase from a closing price of R2.10 on 28 February 2015, while its 
profit after tax has increased seven-fold over the same period, reflecting the Group’s growth from a 
single voice connectivity or telephony services offering to an expanded offering that includes data 
and payment connectivity. This has positive implications for both organic and acquisitive growth aspirations.

The Board remains dedicated to maintaining an optimal capital structure for the Group. Leverage is
regularly considered and reassessed, balancing growth aspirations and shareholders' earnings
expectations. In order to steer the Board, a Capital Structure Policy has been introduced, providing a
debt to equity ratio ceiling of 25% as a guiding parameter.

Revenue
Total Group revenue increased by 63%. This performance includes 11 months of trading from Huge
Connect and Huge Networks.

The Telecom Grouping achieved a 7% increase in revenue after the inclusion of 11 months of revenue
from Huge Networks, a business which, in the opinion of the Board, is substantially sub scale. While
trading conditions during FY2018 were tough for the Telecom Grouping, it was still able to increase its
base of installed telephone lines by 4%, its base of installed data services by 15% and its base of monthly
annuity customers by 6%. 

The launch of FST in November 2017 created significant interest and sales activity in the market but coupled 
with some initial launch challenges and the start of a holiday season, was too late to yield significant cross 
selling opportunities for voice and data services across the customer real estate, left little time to build 
sales momentum and for the new sales’ annuity revenue to have an impact on revenue or profit.  The realisation 
of these three objectives over a full year of operation should bode well for the future growth of the businesses 
in the Telecom Grouping.

Customers can port their geographic fixed landline telephone numbers for use with wireless GSM-based FST, which 
now has all the functions of an equivalent fixed landline telephony service, like the one offered by Telkom. 
This has expanded the size of the Telecom Grouping's market for voice services to in excess of 5 million telephone lines.

The Telecom Grouping expects significant growth in the future sales of voices services as a result of FST.

The revenue of the Fintech Grouping includes 11 months of revenue from Huge Connect, which was
acquired with effect from 30 March 2017.

The revenue of the Corporate Office Grouping includes revenue generated by Accknowledge Systems.

Gross profit
Total gross profit for the Group increased by 89% and total gross profit for the Telecom Grouping
increased by 7%.

The gross profit for the Telecom Grouping could have potentially increased by 27% had it been able to
fully exploit the cost of sales reduction benefits from an agreement that it concluded in February 2017
for the substantial lowering of wholesale input prices related to its voice services. In order to benefit
from these substantially lower wholesale input prices, the Telecom Grouping is required to rotate
services between its suppliers. The rotation of these services has taken longer than expected but by
the end of the financial year, 70% of the Telecom Grouping's voice services are benefiting from lower
input prices. Shareholders were given guidance about the possible impact of the lower input prices in
a voluntary announcement published on the JSE's Stock Exchange News Service on 15 February 2017.

The gross profit of the Fintech Grouping includes 11 months contribution from Huge Connect.

Operating expenses
Total Group operating expenses increased by 47%, which percentage increase is less than the increase
in total Group revenue of 63%. This can be attributed to lower operating cost structures in Huge
Connect and Huge Networks.

Detailed below is an analysis of the year on year changes in various operating expenses of the
Corporate Office Grouping:
-  JSE related expenses increased by R1 million, primarily as a result of the higher market capitalisation
   of Huge during FY2018.
-  Personnel costs increased from a zero base in FY2017 to R8.1 million in FY2018. Personnel costs for
   FY2018 include the costs of a Group CEO for 12 months, the costs of a Group CFO for 11 months
   and the costs of a Company Secretary for 6 months. In FY2017, the costs of the Group CEO were
   allocated to the Telecom Grouping, which also bore the costs of the Chief Operating Officer of
   Huge Telecom and the Company Secretary. Huge appointed the Group CFO with effect from 27
   March 2017 and a new Company Secretary with effect from 1 September 2017. For the next
   financial year (FY2019), Huge Telecom will only bear the costs of a managing director as opposed
   to the costs it bore of both a chief executive officer and chief operating officer during FY2018.
-  Legal expenses increased from R3 million to R5.2 million, and are mainly attributable to the
   Acquisitions and other once-off charges.

The operating expenses relating to the Corporate Office Grouping are unrelated to the organic
performance of the existing Huge operating companies. They are related to building capacity to
manage an enlarged group of operating companies and to professional and legal fees relating to
acquisitions, the benefits of which only accrue in later years. The Corporate Office Grouping expects
to continue to incur additional once-off charges as it pursues future acquisitions.

Finance costs
Huge is embarking on a strategy to centralise the treasury functions of the Group. In future years, the
costs of debt are expected to emanate from a Group treasury function as opposed to separate
operating company treasury functions. At the end of FY2017, the Telecom Grouping repaid debt
borrowings of R20 million, which were priced at an interest rate equal to the Prime Rate plus 9%. During
November 2017, the Telecom Grouping secured a R30 million facility from Futuregrowth Asset
Management Proprietary Limited (FutureGrowth) at JIBAR plus 400 bps, with the first drawdown of R10
million taking place on 15 November 2017. Huge intends to transfer the debt borrowings relating to this
facility to the Corporate Office Grouping during FY2019 and is currently involved in discussions with
FutureGrowth to do so.

Future prospects
The Group’s introduction into payment connectivity via Huge Connect will inevitably lead Huge into 
related services and ultimately Fintech, where we anticipate delivering disruptive and innovative solutions 
to our customers, in partnership with financial institutions. Currently, Huge has connected over 120 000 devices 
for our customers, making the Huge Real Estate one of the largest IoT platforms in Southern Africa. This, in 
conjunction with the customer analytics referenced earlier and coupled with our connectivity expertise, means 
that Huge is ideally positioned to conceive, develop and distribute a suite of Fintech offerings.  Platforms 
for mobile payments, mobility, connectivity and the 'Fintech evolution’ provide an exciting and innovative space 
for the Group to explore. Its expanding customer real estate means that the creation of bespoke financial offerings 
in partnership with financial institutions becomes viable and potentially a highly attractive investment space. 

Huge Telecom will benefit more significantly in future years from the momentum it is seeing since the launch of FST 
and which is being evidenced in increased sales activity.  This will also facilitate the cross selling of voice and 
data services across the customer real estate for a full year.

The Group is positioned to further invest in extending its current service offerings, as well as deepening them. 
Each investment will be intentionally designed to increase the size of the customer real estate, which could include 
niche connectivity solutions, focussed inter alia on opportunities that complement and strengthen existing product and 
service offerings. The Bureau for Economic Research, Research Note 2016, No.1 records that the formal sector SME’s in 
South Africa who are employers stands at around 462 815 at Q2, 2015 - from this data it is apparent that the Group is 
well positioned in the SME market.

Following from the success of FY2018, Huge has established its credentials as a large SME service provider, offering 
connectivity and mobility solutions. Huge has now aggregated a product and service suite that offers significant growth 
opportunities. In addition, the Group’s larger scale, earnings diversification and cash flows have provided it with 
improved access to debt and equity capital markets.  

Acquisitive activity will continue to be essential to the Growing Huge Strategy, with bolt-on acquisitions and 
service-diversification investments being actively pursued.  As the Group expands its customer real estate, harvesting 
cross selling opportunities and introducing new service offerings will be central to fuelling growth. A sustainable 
earnings growth momentum, leveraged off a tangible customer real estate asset, is expected to underpin the embedded 
value of Huge for our stakeholders.

BASIS OF PREPARATION

REVIEWED PROVISIONAL CONDENSED CONSOLIDATED

The reviewed provisional condensed consolidated annual financial results have been prepared in
accordance with the recognition and measurement principles of International Financial Reporting
Standards (IFRS) and the SAICA Financial Reporting Guides as issued by the Accounting Practices
Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council and
includes the information required by IAS 34: Interim Financial Reporting, the Companies Act of South
Africa, and the JSE's Listings Requirements (Listings Requirements).

Any information included in this announcement that might be perceived as a forward-looking
statement has not been reviewed and reporting on by the Company's auditors in accordance with
section 8.40(c) of the Listings Requirements.

The reviewed provisional condensed consolidated annual financial results for the year ended 
28 February 2018 were prepared under the supervision of the Chief Financial Officer of the Company, 
Z Bulbulia, and will be included in the 2018 Integrated Annual Report to be issued to shareholders on or
before 30 June 2018.

ACCOUNTING POLICIES

The accounting policies used in the preparation of these reviewed provisional condensed consolidated
annual financial results comply with IFRS and are consistent with those used in the preparation of the
annual financial results of the Group for the year ended 28 February 2017, with the exception of IFRS9
which was early adopted in the period under review commencing from 1 March 2017.

INDEPENDENT AUDITOR'S REVIEW CONCLUSION

BDO South Africa Inc has reviewed these condensed consolidated provisional results in compliance
with ISRE 2410 and they have expressed an unmodified review conclusion thereon. A copy of their
unmodified review conclusion is available for inspection at the registered office of the Company. The
Directors take full responsibility for the preparation of these provisional condensed consolidated annual
financial statements.

NOTES TO THE REVIEWED PROVISIONAL CONDENSED CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

Standards Issued Not Yet Effective

IFRS 15 Revenue from contracts with customers
This standard is effective for years commencing on or after 1 January 2018. This standard will be
adopted by the Group for the financial reporting period commencing 1 March 2018. IFRS 15 requires
an entity to recognise revenue in such a manner as to depict the transfer of the goods or services to
customers, at an amount representing the consideration to which the entity expects to be entitled in
exchange for those goods or services. The standard has a 5-step process to be applied to all contracts
with customers. The standard provides guidance for identifying the contract with the customer,
identifying the deliverables (the performance obligations), determining the transaction price (including
the treatment of variances in the transaction price, and significant financing components), allocating
the transaction price, and recognising the revenue.

Huge has assessed its significant contracts with customers in line with this standard. The outcomes of
the preliminary assessment indicate that there will be no impact on the current accounting treatment.

IFRS 16 Leases
This standard is effective for years commencing on or after 1 January 2019. This standard is likely to be
adopted by the Group for the financial reporting period commencing on 1 March 2018 but must be
implemented by no later than the financial reporting period commencing on 1 March 2019. IFRS 16
requires a lessee to recognize a right of use of an asset and its concomitant lease obligation for any
lease other than a short term lease, or a lease relating to low value assets - which leases may be treated
similarly to operating leases under the current standard IAS 17, if the exceptions are applied. A lessee
measures its lease obligation at the present value of future lease payments and recognises a right of
use of an asset initially measured at the same amount as the lease obligation, including costs directly
related to entering into the lease. A right of use of an asset is subsequently treated in a similar way to
other assets such as property, plant and equipment, or intangible assets, dependent on the nature of
the underlying item.

The Group has a number of property rental agreements in place. In accordance with IFSR 16 Leases, a
right of use of an asset and the lease obligations associated with rentals would be recognised in the
statement of financial position. The extent of the recognition is yet to be determined. The Group will
take a decision on the transition method to be applied, or the application of exceptions related to
short term and low value asset leases at a later point in time.

Standards Early adopted

IFRS 9 Financial instruments
The Group has early adopted this standard for the financial reporting period commencing 1 March
2017. IFRS 9 provides guidance on the classification, measurement and recognition of financial assets
and financial liabilities and replaces IAS 39. The standard establishes three measurement categories for
financial assets: amortised cost, fair value through other comprehensive income and fair value through
profit and loss. Classification of financial assets into these categories is dependent on the entity's
business model (which informs its objectives with respect to the management of financial assets as a
whole) and the characteristics of the contractual cash flows of the specific financial asset. There were
no significant changes to the classification guidance for financial liabilities.

IFRS 9 introduces a new expected credit loss impairment model that replaces the incurred loss
impairment model used in IAS 39. The Group has adjusted its impairment models to incorporate forward
looking information and time value of money to comply with expected credit loss impairments under
IFRS 9. The Group has quantified the impact of this change.

Basic Earnings and Headline Earnings Per Share
                                                  Reviewed       Reviewed        Audited        Audited
                                          28 February 2018    28 February    28 February    28 February
                                                                     2018           2017           2017
                                               (12 months)    (12 months)    (12 months)    (12 months)
                                                     R'000          cents          R'000          cents
Profit or loss attributable to the     
equity owners of the parent                         76 841          47.40         26 623          26.30
Adjusted for:     
Impairment of property, plant     
and equipment                                        2 794           1.72
Reversal Impairment of financial     
assets                                             (4 520)         (2.78)
Headline earnings per share     
(cents)                                             75 115          46.34         26 623          26.30
Weighted average number of     
shares in issue ('000)                             162 100                       101 360
     
Fair Value Disclosures

Financial assets
                                                                        Reviewed                 Audited
                                                                28 February 2018        28 February 2017
                                                                     (12 months)             (12 months)
                                                                           R'000                   R'000
Trade and other receivables                                              103 299                  42 606
Cash and cash equivalents                                                 30 265                  70 976

These are classified as loans and receivables under the amortised cost model.

Financial liabilities
                                                                        Reviewed                 Audited
                                                                28 February 2018        28 February 2017
                                                                     (12 months)             (12 months)
                                                                           R'000                   R'000
Finance lease obligations                                                  4 073                   2 497
Interest bearing liabilities                                             103 859                       -
Other financial liabilities                                                  840                     753
Trade and other payables                                                  41 506                  35 566
Bank overdraft                                                             1 331                   9 441

These are classified under the amortisation cost model.

Financial assets and liabilities classification levels

                                                          Level 1            Level 2             Level 3
Trade and other                                    Not applicable         Applicable      Not applicable
receivables           
Cash and cash                                          Applicable     Not applicable      Not applicable
equivalents           
Instalment sales                                       Applicable     Not applicable      Not applicable
Other financial liabilities                            Applicable     Not applicable      Not applicable
Trade and other payables                           Not applicable         Applicable      Not applicable
Bank overdraft                                         Applicable     Not applicable      Not applicable

Business Combinations

Huge Connect

On 30 March 2017 the Group acquired 100% of the voting equity interest of Huge Connect which resulted
in the Group obtaining control over Huge Connect. Huge Connect is principally involved in the telecom
industry.

Goodwill of R373.83 million arising from the acquisition relates to the excess of the subscription price
over the net asset value. Goodwill is not deductible for income tax purposes.

Accknowledge

On 1 July 2017 the Group acquired 75% of the voting equity interest of Accknowledge which resulted
in the Group obtaining control over Accknowledge. Accknowledge is principally involved in the
Computer Software industry.

Goodwill of R4.46 million arising from the acquisition relates to the excess of the subscription price
over the net asset value. Goodwill is not deductible for income tax purposes.

Aggregated business combinations

                                                                                        2018        2017
                                                                                       R'000       R'000
Property, plant and equipment                                                         27 151           -
Intangible assets                                                                        345           -
Other financial assets                                                                 1 692           -
Deferred expenditure                                                                   1 390           -
Inventories                                                                              787           -
Current tax receivable                                                                    12           -
Trade and other receivables                                                           10 006           -
Cash and cash equivalents                                                             18 170           -
Other financial liabilities                                                        (141 195)           -
Deferred tax                                                                         (3 891)           -
Provisions                                                                           (2 133)           -
Loans from group companies                                                             (120)           -
Loans from shareholders                                                                (771)           -
Current tax payable                                                                  (2 712)           -
Trade and other payables                                                             (8 509)           -
                                 
Total identifiable net assets                                                       (99 778)           -
Non-controlling interest                                                                 238           -
Goodwill                                                                             378 290           -
                                                                                     278 750
Consideration paid                                 
                                 
Cash                                                                               (270 500)           -
Equity - Renounceable Letters of Allocation                                        (151 250)           -
Liabilities assumed                                                                    1 805           -
Liabilities settled                                                                  141 195           -
                                                                                   (278 750)
Net cash outflow on acquisition                                 
Cash consideration paid                                                            (278 750)           -
Cash acquired                                                                         18 170           - 
                                                                                   (260 580)

Related Party Disclosures

  Relationships
  Subsidiary companies:
          Huge Telecom
          Huge SOHO
          Huge Cellular
          Huge Software & Technologies
          Eyeballs Mobile Advertising
          Ambient Mobile
          Le Gacy
          Huge Connect
          Huge Networks
          Acknowledge
  Joint Controlled Arrangement
          Gonondo
Entities controlled by directors which have
transacted with a Group company
          Acknowledge (James Charles Herbst) 
Members of key management
          James Charles Herbst
          Zunaid Bulbulia
Directors of subsidiary companies
          Michael Ronald Beamish
          Gregory Beaufort Shiers
          Jarratt Ingram
          Anton Daniel Potgieter
          David Deetlefs

Loan Account - owing (to) by related parties                                 
                                                                                        2018          2017
                                                                                       R'000         R'000
Anton Daniel Potgieter                                                                     -           899
James Charles Herbst                                                                       -         (178)
Gregory Beaufort Shiers                                                                 (50)          (44)
Jarratt Ingram                                                                          (98)          (90)
Edward Mitchell Kerby                                                                  (693)         (619)
                                                                                       (841)          (32)
Interest paid to (received from) related parties                                  
                                  
Anton Daniel Potgieter                                                                  (61)         (117)
James Charles Herbst                                                                       5            26
Gregory Beaufort Shiers                                                                    3             5
Jarratt Ingram                                                                             6             9
Edward Mitchell Kerby                                                                     39            62
                                                                                         (8)          (15)
                                  
Purchases from (sales to) related parties                                  
Accknowledge                                                                             401           258
Gonondo                                                                                1 097         1 122
                                                                                       1 498         1 380

TREASURY SHARES

As at 28 February 2018, the Company has 175 602 077 ordinary shares in issue, of which 9 646 926
ordinary shares are held by Huge Telecom in treasury.

LITIGATION STATEMENT

Dispute between Huge and TeleMasters Holdings Limited (TeleMasters)
During February 2013 Telemasters cancelled an agreement with Huge 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 R4.176 million plus interest thereon.

In its Plea and Counterclaim issued on 11 June 2014, the Company:

1.  admitted that TeleMasters was entitled to raise R1.7 million for monthly subscriptions for the period
    15 January 2013 to 14 February 2013 in respect of 2 820 SIM cards;
2.  admitted that TeleMasters was entitled to raise R8 084 for monthly subscriptions for the period 
    15 February 2013 to 18 February 2013 in respect of 100 SIM cards;
3.  claimed that Telemasters is indebted to it in the amount of R4.392 million plus interest thereon in
    respect of amounts overcharged by Telemasters and which is made up as follows:
a)  R1.215 million in respect of "Itemised Billing" for which it was not entitled to charge;
b)  R1.034 million in respect of "Administration Fees" for which it was not entitled to charge;
c)  R2.143 million in respect of "Gross Out of Bundle Charges" (being a claim of R4.053 million in
    respect of Gross Out of Bundle Charges, less a credit note passed by TeleMasters in respect
    thereof of R1.910 million) in respect of which it was not entitled to charge.

The matter is 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.

During February 2017, Huge and TeleMasters decided to separate out for decision (the Separation),
before deciding on the claim and counterclaim, the following issues (the Separated Issues):

  i. Was TeleMasters entitled to charge Huge a fee in respect of Itemised Billing?
 ii. Was TeleMasters entitled to charge huge the Administration Fees?
iii. Was TeleMasters entitled to charge Huge for calls made on SIM cards, where those calls had
     been zero rated by the network operator in the depleting of any accumulated value?"

The hearing was set down for five days, commencing on 2 October 2017. The parties argued the
Separated Issues before the arbitrator on 4 October 2017.

No definitive relief was claimed on account of the Separation but the arbitrator's decision on the
Separated Issues was anticipated to contribute to a convenient resolution of some issues between the parties.

In terms of an award of the arbitrator, dated 6 October 2017, the arbitrator made the following award
in respect of the Separated Issues:

A. In respect of issue number i above, the arbitrator decided in favour of Huge;
B. In respect of issue number ii above, the arbitrator decided in favour of TeleMasters;
C. In respect of issue number iii above, the arbitrator decided in favour of TeleMasters.

The remaining issues arising out of the Statement of Claim and the Plea and Counterclaim were
postponed sine die and no order was made thereon.

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

There have been no events subsequent to 28 February 2018 and up to the date of this announcement
which have had or may have a material impact on the Group.

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.

DIVIDENDS

No dividends were declared or paid during the period under review.

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 IV Report on
Corporate Governance.

Johannesburg
31 May 2018

Sponsor
Questco Corporate Advisory (Pty) Ltd
1st Floor, Ballywoods Office Park, 33 Ballyclare Drive, Bryanston, 2021

Registered office
Unit 6, 1 Melrose Boulevard, Melrose Boulevard, Johannesburg, 2076 (PO Box 1585, Kelvin, 2054)

Transfer Secretaries
Computershare Investor Services (Pty) Ltd
2nd Floor, Rosebank Towers, 15 Bierman Avenue, Rosebank, 2196

Directors
Non-Executive: Dr DF Da Silva (Chairman), SP Tredoux* (Lead Independent Director), DR Gammie*, BC
Armstrong*, CWJ Lyons*, VM Mokholo
Executive: JC Herbst (Chief Executive Officer), Z Bulbulia (Chief Financial Officer)
*Independent
Date: 31/05/2018 04:11:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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