HUGE GROUP LIMITED - Unaudited Condensed Consolidated Interim Results for the six months ended 31 August 2018

Release Date: 30/11/2018 17:15
Code(s): HUG
 
Wrap Text
Unaudited Condensed Consolidated Interim Results for the six months ended 31 August 2018

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

UNAUDITED CONDENSED CONSOLIDATED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 AUGUST 2018

HIGHLIGHTS

- Total revenue increased by 8.4% from R197.9 million to R214.6 million
- Operating profit increased by 77.0% from R38.2 million to R67.6 million
- EBITDA increased by 74.1% from R46.1 million to R80.3 million
- Earnings per share increased by 66.4% from 17.1 cents per share to 28.5 cents per share
- Headline earnings per share increased by 49.2% from 19.1 cents per share to 28.5 cents per
  share

The board of directors (the Board or the Directors) of Huge is pleased to present the unaudited
condensed consolidated interim results of the Company and its subsidiary companies and joint venture
(the Group) for the first six months of the financial year which commences on 1 March 2018 and ends
on 28 February 2019 (FY2019). These results have been compared to the twelve months of the financial
year which commenced on 1 March 2018 and ended on 28 February 2018 (FY2018) and they have
also been compared to the first six months of FY2018.

COMPANY PROFILE

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

It has four principal operating subsidiary companies:
- Huge Connect Proprietary Limited (Huge Connect)
- Huge Networks Proprietary Limited (Huge Networks)
- Huge Software Proprietary Limited (Huge Software)
- Huge Telecom Proprietary Limited (Huge Telecom)

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. 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. Huge Networks is a
subsidiary of Huge Telecom.

Huge Software is an accounting software development company. It is a 75% held subsidiary of Huge.
Huge Software presently offers two products to the SME market, being WebAccounting and its online
Application, Webatar.

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's customer base comprises corporate
organisations of any size and residential consumers, who require a fixed location telephony service.
Huge Telecom does not own any core network infrastructure; rather, it leverages off the existing mobile
operator networks in South Africa.

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

                                            Unaudited            Audited         Unaudited
                                       31 August 2018   28 February 2018    31 August 2017
                                           (6 months)        (12 months)        (6 months)
                                                R'000              R'000             R'000

  Total revenue                               214 559            401 382           197 901
  Gross profit                                125 872            224 538           106 778
  Other income                                 16 396              2 580             1 588
  Operating expenses                         (61 970)           (98 648)          (62 232)
  EBITDA                                       80 298            128 470            46 134
  Depreciation and Amortisation              (12 697)           (15 495)           (7 941)
  Operating profit                             67 601            112 975            38 193
  Investment income                               958              4 332             1 831
  Share of (losses) / earnings from
  equity accounted investments                      -               (72)                 9
  Impairment of property, plant                     -
  and equipment                                                  (2 794)           (2 763)
  Reversal of impairment of                         -
  financial assets                                                 4 520
  Finance costs                               (6 556)           (11 036)           (4 956)
  Profit before taxation                       62 003            107 925            32 314
  Income tax credit / (expense)              (14 852)           (30 861)           (8 859)
  Net profit for the period                    47 151             77 064            23 455
  Non-controlling interest                      (266)              (223)                24
  Net profit attributable to owners
  of the company                               46 885             76 841            23 479

  Basic earnings per share (cents)              28.46              47.40             17.10
  Headline earnings per share
  (cents)                                       28.50              46.34             19.10

No diluted instruments are in issue.

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

                                            Unaudited           Audited         Unaudited
                                       31 August 2018  28 February 2018    31 August 2017
                                                R'000             R'000             R'000

ASSETS
Non-current assets
Property, plant and equipment                 205 829           178 669           115 794
Goodwill                                      593 443           593 443           540 701
Intangible assets                              10 499             8 680             2 848
Investment in joint venture                       616               616               679
Other financial assets                          7 496             7 496              1716
Deferred tax                                   13 070            12 805            12 533
Deferred expenditure                                -                 -            21 042

                                              830 953           801 709           695 313

Current assets
Inventories                                     2 049             1 219            24 664
Loans to Group companies                            -                 -                 -
Trade and other receivables                   132 481           103 299            58 487
Deferred expenditure                                -                 -             8 501
Cash and cash equivalents                      29 962            30 265            19 585
                                              164 492           134 783           111 237
Total assets                                  995 445           936 492           806 550

EQUITY AND LIABILITIES
Share capital                                 607 724           618 772           619 348
Retained earnings                             179 317           128 774            28 580

Equity attributable to equity
Holders of parent                             787 041           747 546           647 928
Non-controlling interest                      (2 688)           (3 016)           (3 025)
                                              784 353           744 530           644 903
Non-current liabilities
Interest bearing liabilities                   93 554            82 500            60 000
Instalment sales                                1 040             2 155             1 802
Deferred tax                                   33 111            30 670            21 703
                                              127 705           115 325            83 505

Current liabilities
Interest bearing liabilities                   21 176            22 199            15 000
Other financial liabilities                     7 145                 -             1 908
Current tax payable                             3 103             9 683             3 888
Instalment sales                                2 633             1 918             3 027
Trade and other payables                       40 701            41 506            49 703
Bank overdraft                                  8 629             1 331             4 616
                                               83 387            76 637            78 142

Total liabilities                             211 092           191 962           161 647
Total equity and liabilities                  995 445           936 492           806 550

Number of shares in issue ('000)              175 602           175 602           175 602
Net asset value per share (cents)              446.67            423.99            367.25
Net tangible asset value share
(cents)                                        102.74             81.10             57.72

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

                        Share       Share    Accumulated                 Non-      Total
                      capital     premium         profit          controlling     equity
                                                                     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
 originally stated         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
Profit for the year         -           -         46 885                  266     47 151
Donation of
treasury shares           (1)    (11 047)              -                    -   (11 048)
Share-based
Payment reserves            -           -          5 955                    -      5 955
Purchase of non-                        -                                  62    (2 235)
controlling interest        -                    (2 297)           
Balance as at 31
August 2018                16     607 708        179 317               (2 688)   784 353

During September 2018, 25 000 ordinary shares were issued by the Company at a price of 900 cents per
share (amounting to R225 000) in consideration for the acquisition of an additional shareholding in Huge
Messaging Proprietary Limited.

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

                                            Unaudited            Audited        Unaudited
                                       31 August 2018   28 February 2018   31 August 2017
                                           (6 months)        (12 months)       (6 months)
                                                R'000              R'000            R'000

Profit before taxation                         62 003            107 925           32 314
Adjusted for non-cash movements                24 320             19 399           13 819
Adjusted for working capital
movements                                       1 464           (38 452)         (30 838)
Net finance costs                             (5 261)            (5 744)          (3 125)
Tax paid                                     (21 416)           (16 566)            (368)
Cash flows from operating activities           61 110             66 562           11 802

Cash flows from investing activities
Purchase of property, plant and
equipment                                    (74 145)           (96 709)         (46 306)
Proceeds from disposal of property,
plant and equipment                                70              1 995               19
Purchase of intangible assets                 (1 164)            (5 132)          (3 127)
Business combinations                               -          (109 330)        (386 174)
Purchase of financial assets                        -            (1 284)                -
                                             (75 239)          (210 460)        (435 588)

Cash flows from financing activities
Proceeds from share issue                           -            148 101          299 927
Treasury shares issued to employees          (11 048)
Proceeds/(Repayment) of interest
bearing liabilities                            10 031           (37 249)           75 000
Proceeds of financial liabilities               7 145                  -             (40)

  Repayment of shareholder loans                    -              (170)                -
  Instalment sale receipts                        400                615            2 333
                                                6 528            111 297          377 220

  Net cash movement for the period            (7 601)           (32 601)         (46 566)
  Cash at the beginning of the period          28 935             61 535           61 535
  Total cash at the end of the period          21 334             28 934           14 969

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:
- 100% held Huge Messaging Proprietary Limited, the holding company of which is 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 Technologies Proprietary Limited, the holding company of which is Huge
- 100% held Huge Telecom Proprietary Limited, the holding company of which is Huge
- 100% held Huge Mobile Proprietary Limited, the holding company of which is Huge

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 Huge Software
- 96% held Huge Media Proprietary Limited

                             Unaudited   Elimination       Telecom         Fintech       Corporate
                             31 August                    Grouping        Grouping          Office
                                  2018                                                    Grouping
                                 R'000         R'000         R'000           R'000           R'000

Total revenue                  214 559                     135 727          77 603           1 229
Gross profit                   125 872                      70 451          54 352           1 069
Other income                    16 396                       1 651             274          14 471
Operating expenses            (61 970)                    (29 746)        (19 653)        (12 571)
EBITDA                          80 298                      42 356          34 973           2 969
Depreciation and
amortisation                  (12 697)                     (7 651)         (4 960)            (86)
Operating profit/(loss)         67 601                      34 705          30 013           2 883
Investment income                  958                         283             417             258

 Finance costs                 (6 556)                     (2 326)             (7)         (4 223)
 Profit/(loss) before
 income tax                     62 003                      32 662          30 423         (1 082)
 Income tax
 credit/(expense)             (14 852)                     (6 915)          8 268)             331
 Profit after income tax        47 151                      25 747          22 155           (751)




                             Unaudited   Elimination       Telecom         Fintech       Corporate
                             31 August                    Grouping        Grouping          Office
                                  2017                                                    Grouping
                                 R'000         R'000         R'000           R'000           R'000

 Total revenue                 197 901       (2 180)       134 661          62 492           2 928
 Gross profit                  106 778       (2 180)        60 801          45 420           2 737
 Other income                    1 588             -           874             714               -
 Operating expenses           (62 232)         2 180      (46 138)        (11 349)         (6 925)
 EBITDA                         46 134                      15 537          34 785         (4 188)
 Depreciation and
 amortisation                  (7 941)                     (4 314)         (3 620)             (7)
 Operating profit/(loss)        38 193                      11 223          31 165         (4 195)
 Investment income               1 831             -           154           1 179             498
 Loss from equity
 accounted
 investments                         9                           9               -               -
 Impairment                    (2 763)             -       (2 763)               -               -
 Finance costs                 (4 956)             -         (502)           (179)         (4 275)
 Profit/(loss) before
 income tax                     32 314                       8 121          32 165         (7 972)
 Income tax
 credit/(expense)              (8 859)                       (996)         (7 945)              82
 Profit after income tax        23 455                       7 125          24 220         (7 890)

COMMENTARY

BASIS OF PREPARATION

The unaudited condensed consolidated interim results have been prepared in accordance with the
recognition and measurement principles of International Financial Reporting Standards (IFRS), the
SAICA Financial Reporting Guides as issued by the Accounting Practices Committee, Financial
Pronouncements as issued by the Financial Reporting Standards Council and IAS 34: Interim Financial
Reporting and includes the information required by 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 reported on by the Company's auditors in accordance with
section 8.40(c) of the Listings Requirements.

The unaudited condensed consolidated interim results for the period ended 31 August 2018 were
prepared under the supervision of the Chief Financial Officer of the Company, Z Bulbulia (CA(SA)).

ACCOUNTING POLICIES

The accounting policies used in the preparation of these unaudited condensed consolidated interim
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, with the exception of IFRS9 which was early
adopted for the period 1 March 2017 to 28 February 2018.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED 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 and ending on 28
February 2019. 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 and ending on
28 February 2019. To the extent that it is not, it must be implemented by no later than the financial
reporting period commencing on 1 March 2019 and ending on 28 February 2020. 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 IFRS 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 and ending on 28 February 2018. 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.

Basic Earnings and Headline Earnings Per Share

                             Unaudited    Unaudited        Audited        Audited   Unaudited    Unaudited
                             31 August    31 August    28 February    28 February   31 August    31 August
                                  2018         2018           2018           2018        2017         2017
                            (6 months)   (6 months)    (12 months)    (12 months)  (6 months)   (6 months)
                                 R'000        cents          R'000          cents       R'000        cents

  Profit or loss
  attributable to the
  equity owners of the
  parent                        46 885         28.46           76 841       47.40       23 479       17.10
  Adjusted for:
  Impairment of
  property, plant and
  equipment                         70          0.04            2 794        1.72        2 744           2
  Reversal of
  Impairment of
  financial assets                   -             -          (4 520)      (2.78)            -           -
  Headline earnings             46 955         28.50           75 115       46.34       26 223       19.10
  Weighted average
  number of shares in
  issue ('000)                 164 749                        162 100                  137 281

Fair Value Disclosures

Financial assets
                                                             Unaudited           Audited          Unaudited
                                                        31 August 2018  28 February 2018     31 August 2017
                                                            (6 months)       (12 months)         (6 months)
                                                                 R'000             R'000              R'000

  Other financial assets                                         7 496             7 496              1 716
  Trade and other receivables 
  (excluding vat and payables)                                  47 058            56 302             58 487
  Cash and cash equivalents                                     29 962            30 265             19 585
 
These are classified as loans and receivables under the amortised cost model.

Financial liabilities
                                                              Unaudited           Audited         Unaudited
                                                         31 August 2018  28 February 2018    31 August 2017
                                                             (6 months)       (12 months)        (6 months)
                                                                  R'000             R'000             R'000

  Instalment sales                                                3 673             4 073             4 830
  Interest bearing liabilities                                  114 730           104 699            75 000
  Trade and other payables                                       40 701            19 978            49 704
  Bank overdraft                                                  8 629             1 331             4 616

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

Related Party Disclosures

  Relationships
  Subsidiary companies:
          Huge Cellular
          Huge Connect
          Huge Media
          Huge Messaging
          Huge Mobile
          Huge Networks
          Huge Software
          Huge Software
          Huge SOHO
          Huge Technologies
          Huge Telecom
  Joint Controlled Arrangement
          Gonondo
  IFRS10 Controlled Entities
          Connectnet Incentive Trust
  Members of key management
          James Charles Herbst
          Zunaid Bulbulia
  Directors of subsidiary companies
          Andre Lessing
          Marius Oberholzer
          Gunter Engling
         (resigned 6 November 2018)
          Craig Rowan
  Shareholders behind non-controlling interests
          Jarratt Ingram
          Edward Mitchell Kerby
          Gregory Beaufort Shiers
  Shareholders of the Company
         Anton Daniel Potgieter
  Associates of non-executive directors
         Casa Da Luz Proprietary Limited - an
  associate company of Dr Duarte da Silva


                                                           Unaudited             Audited           Unaudited
                                                      31 August 2018         28 February
                                                                                    2018      31 August 2017
                                                          (6 months)         (12 months)          (6 months)
                                                               R'000               R'000               R'000

  Loan Account - owing (to) by related parties

  Gunter Engling                                             (5 120)                   -                   -
  James Charles Herbst                                             -                   -                 181
  Jarratt Ingram                                               (900)                (98)                  91
  Edward Mitchell Kerby                                        (225)               (693)                 653
  Gregory Beaufort Shiers                                      (900)                (50)                  46
                                                             (7 145)               (841)               (971)
  Interest paid to (received from) related
  parties

  James Charles Herbst                                             -                   5                   0
  Jarratt Ingram                                                   -                   6                   5
  Edward Mitchell Kerby                                            -                  39                  34
  Anton Daniel Potgieter                                           -                (61)                (44)
  Gregory Beaufort Shiers                                          -                   3                   2
                                                                   -                 (8)                 (3)

  Purchases from related parties
  Casa Da Luz Proprietary Limited                                472                770                  350
  Dee-Anco Investments Proprietary Limited                         -              1 762
  Gonondo                                                        484              1 097                  546
                                                               1 240              4 030                1 225

REVIEW OF OPERATIONS

Overview

The Growing Huge Strategy, which was adopted during 2018 and published in the Group's Integrated
Report for the year ended 28 February 2018, continues to inform and guide the Group's growth
aspirations. The Growing Huge Strategy includes improving the B-BBEE profile of the Group, creating a
platform for growth, creating the capacity for growth, elevating the Group's brand and growing the
Group organically and by acquisition.

A substantial investment is being made in trying to improve the Group's B-BBEE profile, including the
introduction of B-BBEE shareholders in each of Huge's primary operating subsidiary companies. Various
engagements and discussions are taking place currently and the Company is hopeful that it will, in the
very near future, be able to announce the acquisition by B-BBEE persons of a meaningful shareholding
in Huge Connect.

The Company is involved in many initiatives currently, which, if successfully progressed, will help grow
Huge. Some of these initiatives are organic whilst others involve mergers and acquisitions.

Huge's profile continues to improve and as a result the number of deal opportunities in the last 12
months has increased substantially. Huge has considered at least 12 transactions in the last 12 months,
has passed over about 6 and is presently still engaged in about 6 transactions.

The ability to deal with an increased number of deal opportunities has been made possible by the
creation of Corporate Office capacity, the costs of which have been detailed in the Corporate Office
Grouping segment. Shareholders are asked to be cognizant of the longer payback periods relating to
investments in the Corporate Office grouping, which are expensed as opposed to being capitalised.
The income generated by the Corporate Office grouping will be uneven.

R12.6 million has been spent by the Corporate Office Grouping in the six months to 31 August 2018. This
is a significant investment, the returns on which are only expected in future reporting periods.

During the first six months of FY2019, the operating expenses of the Corporate Office Grouping segment
amounted to R12.6 million. Other income of the Corporate Office Grouping for the first six months of
FY2019 includes the consolidation of donation income recognised by the Connectnet Incentive Trust
on receipt by the trust, of cash and Huge shares from the vendors of Connectnet Broadband Wireless
Proprietary Limited (Connectnet) in terms of the incentive scheme. The Connectnet Incentive Trust was
not recognized as a controlled entity of Huge for the year ended 28 February 2018 but has now been
so recognized and accordingly cumulative donations made to the Connectnet Incentive Trust since
inception, in an aggregate amount of R14.5 million, have now been taken into account.

The Connectnet Incentive Trust was established by the vendors of Connectnet for the purpose of
distributing the Huge shares and cash donated by the vendors to staff members of Huge Connect and
Huge Networks who are able to influence the performance and long term sustainability of these
companies.

The distributions that have been made by the Connectnet Incentive Trust since it came into existence,
have been treated as share based expenses in accordance with IFRS2. The operating expenses of the
Telecom Grouping segment is R0.32 million higher as a result of share based expenses relating to Huge
Networks for the current period and is R0.48 million higher as a result of the aforementioned cumulative
effect of the share based expenses relating to Huge Networks during the prior period. The operating
expenses of the Fintech Grouping segment is R1.8 million higher as a result of share based expenses
relating to Huge Connect for the current period and is R3.4 million higher as a result of a catch up of
share based expenses relating to Huge Networks during the prior period.

The Company has created a platform which will allow it to expand its real estate of customers, which
is one of its central investment themes, and expand its distribution of Business Partners, which is another
central investment theme. It has also created the platform to leverage this real estate by expanding
its product and service offerings through the introduction of new, innovative product and services
offerings and by cross-selling both existing and new product and services offerings through its current
distribution of Business Partners and its current real estate of customers. It is also in the process of
developing new strategic partnerships which will become important for the Growing Huge Strategy.

The acquisition of Huge Connect and Huge Networks during FY2018 resulted in Huge growing its mobility
and connectivity business and up-scaling its operations significantly. Huge continues to offer 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.

Central to the Group's ongoing success will be its ability to leverage value from a deep understanding
of its key asset, its real estate of customers. Good progress is being made in collecting, analysing,
segmenting and understanding the Group's real estate of customers. These analytics will provide the
basis and methodology for effectively improving 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.

Review of operations

The results for the first six months of FY2019 include six months of Huge Networks in the Telecom Grouping
segment and Huge Connect in the Fintech Grouping. This must be compared to the five months of
performance of Huge Networks in the Telecom Grouping and Huge Connect in the Fintech Grouping
for the first six months of FY2018.

Huge Connect has experienced significant growth in the provision of network related products and
solutions to its existing and new customers. Churn of traditional connectivity to the payments industry
has increased slightly - Huge Connect has seen a gradual migration of its business from direct retail to
retail via financial institutions. Active SIM card growth, as the means of connectivity to the payments
industry, has increased by 23.2% over the comparable period. Huge Connect now has 304 000 active
SIM cards active within the borders of South Africa.

During the period 31 August 2017 to 31 August 2018, Huge Telecom has increased its customer base by
11.4% and its telephone lines by 12.9%. Full Suite Telephony (FST), which was launched in November
2017, which is a world-first, is still expected to take off. A lot of the challenges that have been
experienced have been overcome. The Group believes that FST remains one of its biggest growth
opportunities for the future.

Huge Networks has strengthened its revenue base significantly but remains relatively subscale. While
the base of installed data services increased by 10% during the period 31 August 2017 to 31 August
2018, this has been off the back of the sale of products and services at lower margins. The Group
continues to search for opportunities to scale this business.

Revenue

Total Group revenue increased by 8.4% during the first half of FY2019 when compared to the first half
of FY2018.

Receivables at 31 August 2018 are considerably higher than receivables at 28 February 2018 and
receivables at 31 August 2017. This is largely as a result of the pre-payments made to the mobile
network providers for the supply of network services. As at 31 August, the pre-payments to the mobile
network operators amounted to R81.7 million. Excluding the effects of these payments, trade
receivables have remained constant and within a reasonable range.

Gross profit

Total Group gross profit increased by 17.9% during the first half of FY2019 when compared to the first
half of FY2018. The Group also enjoyed increases in gross profit margins, which increased from 54% to
59% as a result of reducing costs of sale and the retention of sale prices. The Telecom Grouping
increased margins were as a result of the migration from higher to lower cost suppliers. 81% of the
Telecom Grouping's voice services are benefiting from lower input prices.

As a result of increased revenue and decreased input costs, the gross profit of the Fintech Grouping
increased by 19.7% during the first half of FY2019 when compared to the first half of FY2018. Huge
Connect successfully negotiated a more favourable supply agreement from a substantial network
service provider, the benefits of which have been evident in the current financial period.

Operating expenses

As a result of good cost, total Group operating expenses for the first six months of FY2019 have
decreased when compared to the first six months of FY2018. This has been offset by the share based
expenses referred to above.

EBITDA

Group EBITDA for the first six months of FY2019 is 74.1% higher than Group EBITDA for the first six months
of FY2018. The increase in Group EBITDA is the result of lower costs of sale, improved gross margins and
the strong cost containment of operating expenses in both Huge Connect and Huge Telecom.

Depreciation and Amortisation

Depreciation and amortisation is higher as a result of increases in property, plant and equipment.
Deferred expenses of R32 million at the end of FY2018 were subsequently reclassified as property, plant
and equipment.

Operating profit

As a result of the increase in gross profit and lower operating expenses, Group operating profit for the
first six months of FY2019 is 77% higher than operating profit for the first six months of FY2018. Operating
profit margins have increased from 19.3% to 31.5%. Operating profit in the Fintech Grouping was
negatively impacted by the share based expense referred to above, which amounted to R5.2 million.

Finance costs

Finance costs for the first six months of FY2018 were 32% higher than finance costs for the first six months
of FY2018. This increase is attributable to an increase in Group interest bearing debt from R75 million at
31 August 2017 to R115 million at 31 August 2018. The cost of Group interest bearing debt is between
JIBAR plus 400 bps and JIBAR plus 500 bps.

Taxation

The Group's effective tax rate has decreased from 27% to 24% as a result of the exempt income in the
current financial reporting period.

Capital

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. During the FY2019, the Group increased its
bearing debt from R105 million to R115 million but remained within its desired capital structure with a
debt to equity ratio of 15%. As the Group continues to grow its respective operations, it is anticipated
that its interest bearing debt will be increased and shareholders will be updated accordingly.

FUTURE PROSPECTS

The Group continues to explore opportunities to expand the Fintech Grouping, which today is only
focused on payment connectivity. Its real estate of circa 135 000 connected devices makes it one of
the largest potential platforms for IoT in Southern Africa. In conjunction with the customer analytics,
which it continues to develop, this real estate of devices positions Huge to enter the market for Fintech
and to participate in the Fintech evolution that is taking place. The Company continues to believe that
it is possible to leverage its payment connectivity platform to create bespoke financial services, in
partnership with financial institutions.

The Group believes that Huge Telecom will benefit significantly from FST.

The Group will continue to build its eco-system for service and product delivery to a real estate in excess
of 45 000 SME customers. The Group believes that it is well positioned to increase the number of installed
telephone lines, which is currently has over 43 000, and the number of active devices, which is currently
in excess of 120 000 by selling existing services and products to an increasing number of customers.

TREASURY SHARES

As at 31 August 2018, the Company has 175 602 077 ordinary shares in issue, of which 9 646 926 ordinary
shares are held by Huge Telecom and 1 206 027 ordinary shares are held by the Connectnet Incentive
Trust as treasury shares. The impact of accounting for the Connectnet Incentive Trust as a controlled
entity of Huge in terms of IFRS10 has been a decrease in share capital of R11 million.

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 31 August 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
30 November 2018

Sponsor
Questco Corporate Advisory Proprietary Limited
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 Proprietary Limited
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



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