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HUG
HUG
HUG - Huge Limited - Unaudited Interim Results Of The Huge Limited For The
Six Months Ended 31 August 2008
HUGE LIMITED
(Formerly Vanquish Fund Managers Limited)
(Registration number 2006/023587/06)
Share code: HUG ISIN: ZAE000102042
("Huge" or "the Group" or "the company")
UNAUDITED INTERIM RESULTS OF THE HUGE LIMITED FOR THE SIX MONTHS ENDED 31
AUGUST 2008
HIGHLIGHTS FOR THE PERIOD UNDER REVIEW
- An industry growth rate currently averaging 18% per annum
- An increase in the market share of Huge Telecom in cellular least cost
routing (CLCR) services from 18% to 20.5%
- A 25% increase in revenue when compared to the comparative six months to
31 August 2007
- An increase in headline gross profit margins maintained from 22.2% to
23.8%
- Operating profit margins before tax increased from 10.35%, for the 12
months to 29 February 2008 to 14.24% for the 6 months to 31 August 2008
- Earnings per share and headline earnings per share of 26.18 cents for
the 6 month interim period ended 31 August 2008
- Cash flow generated from operations for the period under review of R19.5
million
- The acquisition of 25% plus 1 share in Eyeballs Mobile Advertising
(Proprietary) Limited
- The appointment of Don Tredoux, the previous co-founder of Orion Telecom
(Proprietary) Limited, now a wholly-owned subsidiary of Vox Telecom
Limited, as a non-executive director
- The appointment of Kenneth Delroy Jarvis, the previous Chief Information
Officer of the South African Revenue Service, as a non-executive
director
- The appointment of Amil De Moura as CIO: Huge Telecom
- The appointment of Eugene Volschenk as Regional Director: Huge Telecom:
Gauteng
- The appointment of Phillip Stier as Regional Director: Huge Telecom:
Cape
- The appointment of Geovanna Sutherland as Regional Director: Huge
Telecom: KZN
- The appointment of Justin Hammett as Regional Director: Huge Telecom:
Eastern Cape
- The elimination of all financial bank guarantees issued in favour of
third parties
- The launch of Huge Charity, a duly registered non-profit Trust and the
Corporate Social Investment vehicle for Huge
UNAUDITED RESULTS FOR THE 6 MONTH PERIOD ENDED 31 AUGUST 2008
Consolidated Income Unaudited Unaudited Audited
Statement 31 August 31 August 29
2008 2007 February
(6 (6 months) 2008
months) (7
months)
R R R
Revenue 308 875 29 443 688 243 543
291 948
Gross profit 73 377 5 866 281 58 742
144 068
Other income 2 578 224 94 925 3 078 528
Operating costs (31 968 (3 767 (25 644
678) 440) 271)
Earnings before interest, 43 986 2 193 766 36 176
and taxation 690 325
Depreciation (10 195 (210 100) (4 862
481) 493)
Finance costs - (780 212) (6 266
896)
Interest income 1 645 693 1 712 575 10 841
183
Net income before 35 436 2 916 029 35 888
taxation 902 119
Taxation (6 643 (845 649) (9 636
048) 096)
Attributable earnings 28 793 2 070 380 26 252
854 023
Basic earnings per share 26.18 3.50 44.17
(cents)
Dividends - - -
Total number of shares in 111 760 100 000 106 760
issue (`000)
Weighted number of shares 109 979 59 178 59 436
in issue (`000)
Consolidated Balance Unaudited Unaudited Audited
Sheet 31 August 31 August 29
2008 2007 February
2008
R R R
Assets
Property, plant and 58 339 330 23 011 57 286
equipment 823 740
Investments in associate 11 326 381 320 762 1 806 133
Advance payment for - 76 228 -
investment 728
Intangible assets 215 691 102 829 222 898
080 838 180
Accounts receivable 126 015 57 682 92 656
017 738 854
Bank and cash 23 664 320 5 954 246 19 878
646
Total assets 435 036 266 028 394 526
128 135 553
Equity and liabilities
Issued share capital 236 588 200 562 221 588
412 393 412
Reserves 55 269 923 2 070 381 26 476
066
Non-current liabilities 35 168 814 2 543 403 19 149
545
Account payable 104 461 56 761 121 919
129 075 461
Provision for taxation 3 547 850 4 090 883 5 393 069
Total equity and 435 036 266 028 394 526
liabilities 128 136 553
Number of shares in issue 111 760 10 000 106 760
(`000)
Net asset value per share 261.15 266.03 232.36
(cents)
Net tangible asset value 68.15 163.20 23.57
per share (cents)
Consolidated Statement of Unaudited Unaudited Audited
Changes in Equity 31 August 31 August 29
2008 2007 February
2008
R R R
Balance at 28 February 100 100 100
2007
Shares issued 200 934 200 934 200 934
833 833 833
Share issue expenses (373 400) (373 400) (373 400)
Profit for the 6 month
period ended 31 August 2 070 831 2 070 831 2 070 831
2007
Balance at 31 August 2007 200 561 200 561 200 561
533 533 533
Shares issued 21 856 21 856
902 902
Share issue expenses (605 980) (605 980)
Profit for the 6 month
period ended 29 February 24 181 24 181
2008 192 192
Balance at 29 February 248 064 248 064
2008 478 478
Shares issued 17 500
000
Share issue expenses (2 500
000)
Profit for the 6 month
period ended 31 August 28 793
2008 854
Balance at 31 August 2008 291 858
335
Consolidated Cash Flow Unaudited Unaudited Audited
Statement 31 August 31 August 29
2008 2007 February
(6 (6 2008
months) months) (7
months)
R R R
Cash flows from operating 19 457 (1 739 27 476
activities 244 231) 452
Cash flows from investing (12 586 (69 242 (134 351
activities 645) 315) 067)
Cash flows from financing (3 084 76 935 126 753
activities 925) 692 261
Net cash movement for the 3 785 674 5 954 146 19 878
period 546
Cash at the beginning of 19 878 100 100
the period 646
Total cash at the end of 23 664 5 954 246 19 878
the period 320 646
COMMENTARY
The board of directors of Huge is pleased to present the Group`s unaudited
results for the six months ended 31 August 2008. These financial statements
have been prepared in accordance with accounting policies and methods of
computation that are consistent with those of the prior year and with
International Financial Reporting Standards ("IFRS"). This announcement is
prepared in accordance with IAS 34 - Interim Financial Reporting.
COMPANY PROFILE
Huge successfully listed on the Alternative Exchange of the JSE Limited on 8
August 2007 and currently operates in the corporate telecommunications sector
through its subsidiary company, Huge Telecom (Proprietary) Limited ("Huge
Telecom")- which comprises the merged businesses of TelePassport
(Proprietary) Limited ("TelePassport")and CentraCell (Proprietary) Limited
("CentraCell"). Huge purchased TelePassport on listing, and completed its
acquisition of CentraCell on 15 February 2008 after having received
Competition Commission approval.
Huge Telecom offers corporate customers in South Africa and Namibia the
professional outsourced management of their voice communication services,
through the efficient provision and management of the telecommunications
companies that provide them. Huge Telecom has offices in Johannesburg,
Durban, Cape Town and Port Elizabeth, and an associate company, TelePassport
Communications, based in Windhoek. The company services over 11,000
corporate client sites.
Huge Telecom is a leading managed telecommunications company, and is the
second largest of the four dominant companies in this segment of the
telecommunications industry. The segment is currently estimated to be valued
at an annual R3.28 billion, of which Huge Telecom has a 20.5% market share.
Huge Telecom focuses on the management of corporate voice communication
services. This service includes, but is not limited to, the elimination of
waste from the misuse of its clients` company resources. This is achieved
through the use of proprietary private call prediction technology, the
introduction of alternative - and cheaper - forms of communication such as
short message services (SMS) and corporate call-back servers, and also
through the elimination of cross-network telephone calls. The latter is
achieved through the introduction of intelligent, technology-based, cost-
savings-orientated, on-net routing of all telecommunications spend (including
international, national, mobile and local telephone calls) not addressed by
the former steps.
Investor and shareholder information is available at www.hugegroup.com.
BUSINESS OVERVIEW
The financial objectives for the past six months included improving service
delivery, increasing operational efficiencies and generating higher operating
margins. Huge Telecom has achieved measured success in each of these areas
and continues to strive for further improvement.
Huge Telecom continues to challenge the current status quo within its
business paradigms to ensure that every activity in the business meets the
vision of the Group - which is the unlocking of value for all stakeholders.
This has required the critical analysis of the way in which the company does
its business; and this process is ongoing.
Huge Telecom also continues to focus on simplifying its business by removing
duplication and complexity: this will drive a focus on activities, functions
and processes that deliver high value at low cost.
FINANCIAL OVERVIEW
The results of Huge for this 6 month interim period ending 31 August 2008
include the full six months trading results for both CentraCell and
TelePassport, trading as the merged entity, Huge Telecom. The results of
Huge for the 6 month interim period that ended on 31 August 2007 consisted of
the trading results of TelePassport for only one month after listing. These
results are therefore not directly comparable to those reported for the prior
6 month period.
A segmental analysis of the group`s major segments has not been presented as
the company only operates in one segment, within South Africa.
TRADING ENVIRONMENT
The first half of the 2008/2009 trading year was marked by weaker consumer
confidence, as the impact of increases in interest rates, increased fuel
prices and volatility in global and local financial markets took hold.
Despite inflationary pressure, trading performance remained robust during the
period.
The outlook for remainder of the financial year shows every sign of being a
lot tougher for South Africans and is expected to be challenging as the SA
consumer continues to come under pressure. Despite the underlying strength
of the South African economy, the global macro economic environment will
affect South Africa. There are a number of factors that continue to
contribute significantly to an increase in local inflation, and this will
highlight the need for corporations to tighten their control over telephone
and communications usage and effectiveness. Companies delivering managed
telecommunications will therefore be naturally well placed to benefit from
this cost consciousness.
The demand for managed telecommunications by corporate entities also displays
a high level of price inelasticity. The main reasons for this are that the
person making the corporate telephone call is different from the person
paying the bills; communication is also a vital part of any enterprise`s
operation, and while per-minute costs are often addressed, the actual volume
of communication is one of the last areas to be sacrificed. Huge Telecom
normally benefits during tighter economic periods, which traditionally spur
adoption of more aggressive cost saving measures by the corporate entity.
More specifically, the current fixed line to mobile voice traffic enjoyed by
Telkom could face further scrutiny by cost conscious companies and in an
effort to reduce the occurrence of such cross-network traffic, a shift to on-
network solutions could increase. Huge Telecom would be a major beneficiary
of such a shift in the profile of voice traffic.
FUTURE PROSPECTS
The South African telecommunications market for mobile voice traffic is
growing at around 18% per annum.
Mobile to mobile telephone calls terminated in SA today using Cellular Least-
Cost-Routing ("CLCR") amounts to approximately 2.8 billion minutes per annum.
Taking into account that total fixed-line to mobile voice traffic originated
by Telkom and terminated on the mobile networks is around 4.2 billion minutes
per annum, the scope for organic growth in managed telecommunications is
capable of exceeding the growth rates of the broader mobile
telecommunications market. Earnings growth rates in excess of 20% should
therefore be achievable for the foreseeable future.
The African telecommunications market, and particularly the advent of VoIP
technology, represents the latest trend towards an increase in
telecommunication routing alternatives and this increases the growth
opportunity for communications services companies involved in managing
telecommunications both domestically and abroad.
Huge Telecom has calculated that the cost of organic acquisition of customers
is less than R2500 per corporate subscriber. Consolidation of industry
participants will be measured against this benchmark and adjusted for
variables related to the time taken to procure customers of the magnitude in
question.
Huge Telecom is not an infrastructure player and therefore does not face any
competitive infrastructural risks.
Huge Telecom`s revenue generated is by nature recurring or annuity-based and
the monthly annuity book has a value in excess of R53.5 million per month,
representing corporate customers, and this represents the embedded/in-
force/book value of the company. This monthly revenue can generate annual
turnover of R642 million and at a gross profit margin of 22% can contribute
approximately R141 million to the gross margin of an existing competitor with
a marginal increase to overhead. The value of Huge Telecom is therefore
underpinned by this potential competitive marginal profit contribution and
this further underpins the value of Huge.
Huge estimates that the market for CLCR services has increased by an
annualised rate of 18% in the last 6 months from R3 billion in total revenue
at the end of February 2008 to an estimated R3.28 billion in total revenue at
the end of August 2008.
Huge Telecom has managed to increase its market share by 2.5%, from 18% to
20.5%, by achieving an annualised growth rate in total revenue for the six
month period ending 31 August 2008 of 24%.
Provided the market and Huge Telecom continue to grow at the same respective
rates, Huge Telecom could see its market share expand further.
Our objectives for the coming period remain:
- Organic growth in Huge Telecom;
- Continued focus on operational and customer service excellence in Huge
Telecom;
- Continued focus on leveraging efficiencies in Huge Telecom;
- Continued investment in and support of intellectual capital;
- Acquisitive growth into allied industries and markets; and
- The introduction of further strategic and BBBEE shareholders.
ACQUISITIONS
In terms of sale agreements signed on 27 March 2008, Huge acquired 2 500
ordinary shares of R1 each in the share capital of Eyeballs Mobile
Advertising (Proprietary) Limited ("Eyeballs Mobile"), representing 25% of
the entire issued share capital of Eyeballs Mobile, from The Benson Trust,
The 59 Kloofnek Trust and Nathan Lewin ("the sale transactions") for R6 000
000. The effective date is 1 January 2008.
Eyeballs Mobile is based in Cape Town, and has developed a unique media
platform that delivers rich advertising content to GSM mobile subscriber
handsets in an unobtrusive and non-invasive manner, providing an extremely
attractive alternative to SMS and MMS advertising which are often seen as
spam. The technology developed by Eyeballs Mobile currently has intellectual
property protection that provides it with a significant window of opportunity
in the mobile advertising and media arenas.
The mobile advertising medium has even greater significance in developing
markets where Internet access is still limited. In South Africa the mobile
medium of cell phones has the ability to reach 80% of the population because
of its pervasive presence as a communication medium.
The future prospects of Eyeballs Mobile and the synergies that it offers with
existing opportunities within Huge are significant. Mobile media is expected
to grow exponentially making it an incredibly lucrative market in the very
near future.
Eyeballs Mobile launched its mobile handset advertising proposition to much
media interest in August 2008, and is currently busy building its recipient
base.
ISSUE OF SHARES FOR CASH
On 8 July 2008 Huge issued 5 000 000 ordinary shares for cash at a price of
349.5 cents per share.
SUBSEQUENT EVENTS
A formal sale of shares agreement between Huge and The Bebinchand Seevnarayan
Trust, in relation to the acquisition by Huge of 59% of the ordinary shares
held by The Bebinchand Seevnarayan Trust in iTalk as well as the shareholder
claims on loan account held by The Bebinchand Seevnarayan Trust against
iTalk, was signed on 4 February 2008, and remains subject to the following
suspensive conditions, which conditions are required to be fulfilled by no
later than 31 December 2008:
1. the granting of all regulatory approvals for the implementation of the
Sale Agreement ("first outstanding condition");
2. written confirmation from MTN Group Limited of the waiver of its pre-
emptive rights under the shareholders` agreement with The Bebinchand
Seevnarayan Trust in relation to iTalk in respect of the disposal of its
shares in iTalk ("second outstanding condition");
3. written confirmation from Mobile Telephone Networks (Proprietary)
Limited of the waiver of its pre-emptive rights under the service provision
agreement in respect of the disposal of the shares held by The Bebinchand
Seevnarayan Trust in iTalk ("third outstanding condition");
4. the approval by the board of directors of iTalk for the acquisition of
the shares in iTalk by Huge("fourth outstanding condition");
5. written confirmation from Mobile Telephone Networks (Proprietary)
Limited in terms of the service provision agreement with iTalk that it
approves the acquisition of the shares in iTalk by Huge ("fifth outstanding
condition");
6. written confirmation from Mobile Telephone Networks (Proprietary)
Limited in terms of the service provision agreement with iTalk that it
approves the terms and conditions of the sale of the shares in iTalk by The
Bebinchand Seevnarayan Trust to Huge("final outstanding condition");
Huge has received Competition Commission approval for the implementation of
the transaction in terms of the Sale Agreement.
The fulfilment of the first outstanding condition is under the control of
Huge.
The second outstanding condition and the third outstanding condition are
capable of being waived by Huge.
The confirmations required in terms of the fourth outstanding condition, the
fifth outstanding condition, and the final outstanding condition may not be
unreasonably withheld by the entities obliged to provide the confirmations.
In terms of the Sale Agreement, Huge shall issue 93 000 000 ordinary shares
("the Vendor Consideration Shares") of one hundredth of 1 cent each to The
Bebinchand Seevnarayan Trust at an issue price of 550 cents per share, being
a premium of 549.99 cents per share.
In terms of an option agreement ("Option Agreement") between Huge and The
Bebinchand Seevnarayan Trust, Huge has granted The Bebinchand Seevnarayan
Trust an option to require Huge to acquire 74 171 779 Vendor Consideration
Shares at a price of 350.54 cents per share, such option to be exercised on
or before 31 August 2009 ("the Put Option").
In terms of the Option Agreement, Huge has secured an option which entitles
Huge to acquire 74 171 779 Vendor Consideration Shares at a price of 550
cents per share, such option to be exercised on or before 30 June 2010 ("the
Call Option").
MTN Group Limited has exercised its rights of pre-emption in terms of the
shareholders` agreement with The Bebinchand Seevnarayan Trust in relation to
iTalk. The transaction contemplated by MTN Group Limited will require a
recommendation to be made by the Competition Commission to the Competition
Tribunal for unconditional approval of the transaction contemplated by MTN
Group Limited.
Huge is currently engaged with the Competition Commission in an effort to
oppose the transaction contemplated by MTN Group Limited and to justify to
the Competition Commission the reasons why the Competition Commission should
recommend the prohibition of the MTN Group Limited transaction to the
Competition Tribunal. In the event that the Competition Commission
recommends the unconditional approval (as opposed to the prohibition) of the
transaction by the Competition Tribunal, Huge has instructed senior counsel
to legally object to the merger on the basis that the proposed transaction
has the effect of substantially lessening competition in the mobile
telecommunications industry in South Africa.
CHANGES TO THE BOARD OF DIRECTORS
With effect from 1 August 2008, Mr Donovan ("Don") Tredoux was appointed to
the board of directors.
With effect from 1 September 2008, Mr Kenneth Delroy Jarvis was appointed to
the board of directors.
DIVIDENDS
The board of directors declared a maiden dividend on 29 August 2009 of 12
cents per share to all shareholders registered as shareholders on 19
September 2008. The dividend was paid on 29 September 2008.
The board continues to support a dividend policy where the dividend cover is
two times earnings and where the dividend cycle is annual.
Johannesburg
7 October 2008
Corporate Advisor
Manhattan Equity Corporate Finance (Proprietary) Limited
Designated Advisor
Arcay Moela Sponsors (Proprietary) Limited
Registered office:
Block 2, Woodlands Drive Office Park, 5 Woodlands Drive, Woodmead,
Johannesburg, 2191 (PO Box 16376, Dowerglen, 1610)
Transfer secretaries
Computershare Investor Services (Proprietary) Limited, Ground Floor, 70
Marshall Street, Johannesburg
Directors:
EF Lediga*, BA McQueen*, D Tredoux*, KD Jarvis*, AD Potgieter (CEO), JC
Herbst (CFO), VM Mokholo, JA Morelis, SP Tredoux, M Pillay
*Non-executive
Date: 08/10/2008 10:20:22 Produced by the JSE SENS Department.
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