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Abridged consolidated annual financial results for the year ended 28 Feb 2018, change statement and notice of AGM
HUGE GROUP LTD
(Registration number 2006/023587/06)
Share code: HUG ISIN: ZAE000102042
("Huge" or "the Company")
ABRIDGED CONSOLIDATED ANNUAL FINANCIAL RESULTS FOR THE YEAR ENDED 28 FEBRUARY 2018,
CHANGE STATEMENT AND NOTICE OF ANNUAL GENERAL MEETING
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 abridged
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.
SUMMARISED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Audited 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
SUMMARISED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Audited 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 82 500 -
Instalment sales 2 155 1 331
Deferred tax 30 670 9 942
115 325 11 273
Current liabilities
Interest-bearing liabilities 22 199 753
Loans from shareholders - 178
Current tax payable 9 683 4 256
Instalment sales 1 918 1 166
Trade and other payables 41 506 35 566
Bank overdraft 1 331 9 441
76 637 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
SUMMARISED 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.
SUMMARISED CONSOLIDATED STATEMENT OF CASH FLOWS
Audited 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 19 399 15 421
Adjusted for working capital movements (38 452) (22 517)
Net finance costs (5 744) (4 668)
Tax (paid) received (16 566) 86
Cash flows from operating activities 66 562 25 436
Cash flows from investing activities
Purchase of property, plant and equipment (96 709) (20 266)
Proceeds from disposal of property, plant
and equipment 1 995 17
Purchase of intangible assets (5 132) (5 549)
Business combinations (109 330) -
Purchase of financial assets (1 284) -
(210 460) (25 798)
Cash flows from financing activities
Proceeds from share issue 148 101 90 098
Proceeds/(Repayment) of other financial
liabilities (37 249) 59
41Repayment of interest bearing liabilities - (20 000)
Proceeds/(Repayment) of shareholder loans (170) (1 183)
Instalment sale receipts/(payments) 615 (1 759)
111 297 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
Audited Corporate
28 February Telecom Fintech Office
2018 Elimination Grouping Grouping 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 Corporate
28 February Telecom Fintech Office
2017 Elimination Grouping Grouping 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)
CHANGE STATEMENT
The following changes have been made in these abridged results as compared to the reviewed
condensed consolidated financial results for the period ended 28 February 2018 (provisional results)
released on SENS on 31 May 2018:
1. Change to Statement of Financial Position
1.1 Reclassification of the current and non-current split in interest bearing liabilities
Interest-bearing loans in an amount of R4 176 000, classified as a non-current liability in the
provisional results, have, on reassessment, been classified as a current liability.
The effect of the abovementioned changes on the Statement of Financial Position is as follows:
Audited results Provisional results Difference
R'000 R'000 R'000
Non-current liabilities 115 325 111 149 4 176
Interest-bearing liabilities 82 500 78 324 4 176
Instalment Sales 2 155 2 155 -
Deferred tax 30 670 30 670 -
Current liabilities 76 637 80 813 (4 176)
Interest-bearing liabilities 22 199 26 375 (4 176)
Current tax payable 9 683 9 683 -
Instalment Sales 1 918 1 918 -
Trade and other payables 41 507 41 507 -
Bank overdraft 1 331 1 331 -
TOTAL LIABILITIES 191 963 191 963 -
TOTAL EQUITY AND LIABILITIES 936 493 936 493 -
2. Changes to the Statement of Cash Flows
2.1 Correction of Equity Component of Subscription Consideration
The equity component of the Subscription Consideration of ConnectNet, an amount of
R151 250 000, was initially included under Financing Activities on the Statement of Cash Flows
and has subsequently been corrected.
2.2 Reclassification of the Deferred Expenditure to Property, plant and equipment
The movement of Deferred Expenditure was initially classified as a component of working
capital movements and has subsequently been reclassified under investing activities as part of
Plant, property and equipment.
2.3 Reclassification of various non-cash movements
There were various non-cash movements of an immaterial nature resulting from the business
combinations, which were reclassified from operating activities to financing activities and
investing activities.
The effect of the abovementioned changes on the Statement of Cash Flows is as follows:
Audited results Provisional results Difference
R'000 R'000 R'000
Operating activities
Profit before tax 107 925 107 925 -
Adjusted for non-cash 19 399 14 392 5 007
movements
Adjusted for working capital (38 452) (61 985) 23 533
movements
Net finance costs (5 744) (5 744) -
Tax (paid) received (16 566) (16 718) 152
Cash flows from operating 66 562 37 870 28 692
activities
Investing activities
Purchase of property, plant and (96 709) (73 349) (23 360)
equipment
Proceeds from disposal of 1 995 4 790 (2 795)
property, plant and equipment
Purchase of intangible assets (5 132) (4 770) (362)
Business combinations (109 330) (260 580) 151 250
Purchase of financial assets (1 284) - (1 284)
Cash flows from Investing (210 460) (333 909) 123 449
activities
Financing activities
Proceeds from share issue 148 101 299 351 (151 250)
Repayment of interest-bearing (37 249) (37 249) -
liabilities
Repayments of group loans on (120) - (120)
business combination
Repayments of shareholder loans (50) 721 (771)
Instalment sale receipts/(payments) 615 615 -
Cash flows from financing activities 111 297 263 438 (152 141)
Net cash movement for the period (32 601) (32 601) -
Cash at the beginning of the period 61 535 61 535 -
Total cash at the end of the period 28 935 28 935 -
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 focused 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 focused 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 ongoing 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 ongoing 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, focused 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
ABRIDGED CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
The abridged 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 abridged 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.
ACCOUNTING POLICIES
The accounting policies used in the preparation of these abridged 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 2018.
REPORT OF THE INDEPENDENT AUDITOR
BDO South Africa Inc has audited the consolidated annual financial statements from which these
summarised results have been extracted and they have expressed an unmodified audit opinion
thereon.
The unmodified audit opinion and the full consolidated annual financial statements from which these
results were extracted are available for inspection at the registered office of the Company.
The Directors take full responsibility for the preparation of this abridged report and the extraction of
these results from the annual financial statements.
NOTES TO THE ABRIDGED 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 28 February 28 February 28 February
2018 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
Other financial assets 7 496 -
Trade and other receivables (excluding vat and
payables) 56 302 37 687
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
Instalment sales 4 073 2 497
Interest-bearing liabilities 104 699 753
Trade and other payables 19 978 22 775
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
receivables Not applicable Applicable Not applicable
Cash and cash
equivalents Applicable Not applicable Not applicable
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 (127 500) -
Cash acquired 18 170 -
(109 330) -
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
Accknowledge
Joint Controlled Arrangement
Gonondo
Entities controlled by directors which have
transacted with a Group company
Accknowledge (James Charles Herbst)
Casa DA Luz Pty Ltd (DF da Silva)
Dee-Anco Investments Pty Ltd (D Deetlefs)
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
Casa Da Luz Pty Ltd 770 565
Dee-Anco Investments Pty Ltd 1 762 -
Gonondo 1 097 1 122
4 030 1 945
TREASURY SHARES
As at 28 February 2018, the Company had 175 602 077 ordinary shares in issue, of which 9 646 926
ordinary shares were 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.
NOTICE OF ANNUAL GENERAL MEETING
The annual general meeting of the shareholders of the Company will be held at 10h00 on Thursday,
30 August 2018 at the offices of Huge, Unit 6, 1 Melrose Boulevard, Melrose Arch, Johannesburg. The
notice of annual general meeting forms part of the 2018 Integrated Report, which will be distributed
to shareholders registered as such on Friday, 22 June 2018, and published on the website of the
Company, today, 29 June 2018. In terms of section 62(3)(a), as read with section 59 of the Companies
Act 71 of 2008 (as amended), the record date for the purposes of determining which shareholders of
the Company are entitled to participate in and vote at the annual general meeting is Friday, 24
August 2018. Accordingly, the last day to trade in the Company's shares in order to be recorded in
the register of shareholder entitled to vote will be Tuesday, 21 August 2018.
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
29 June 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 Arch, Johannesburg, 2076 (PO Box 1585, Kelvin, 2054)
Transfer Secretaries
Computershare Investor Services (Pty) Ltd
2nd Floor, Rosebank Towers, 15 Biermann 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: 02/07/2018 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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