| Fri 29 May 2009, 13:32 | | HUG - Huge Group - Reviewed results of huge for the year Ended 28 February 2009 |
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HUG
HUG
HUG - Huge Group - Reviewed results of huge for the year Ended 28 February 2009
HUGE GROUP LIMITED
(Registration number 2006/023587/06)
Share code: HUG & ISIN: ZAE000102042
("Huge" or "the Group" or "the company")
REVIEWED RESULTS OF HUGE FOR THE YEAR ENDED 28 FEBRUARY 2009
HIGHLIGHTS FOR THE PERIOD UNDER REVIEW
- Huge remains profitable in difficult trading environment
- Cash flow from operations up 306% to R 60.2 million, or 56.7 cents per
share, compared to the comparative twelve months to 28 February 2008
- Recurring cash flow from operations of R69 million for the financial year
before once off and exceptional items
- Revenue up 9% compared to the comparative twelve months to 28 February 2008
- Annual revenue of R606 million
- Gross profit up 27% compared to the comparative twelve months to 28
February 2008
- Gross profit margins up from 17.8% to 20.8% when compared to the
comparative twelve months to 28 February 2008
- Trading profit from operations up 29% compared to the comparative twelve
months to 28 February 2008
- Trading profit from operations of R47 million per annum
- Trading profit from operations before once off items of R55.8 million per
annum
- Net asset value per share of 234.7 cents
- Net profit of R7.4 million after once off and exceptional items
- The acquisition of an additional 52% of Eyeballs Mobile Advertising
(Proprietary) Limited, after year end bringing total shareholding to 77%
- The appointment of Michelle Allison Meth as financial director of Huge and
Huge Telecom (Proprietary) Limited ("Huge Telecom")
REVIEWED RESULTS FOR THE YEAR ENDED 28 FEBRUARY 2009
Consolidated Income Reviewed Unaudited Audited
Statement
28 February 31 August 29 February
2009 2008 2008
(12 months) (6 months) (7 months)
R R R
Revenue 605 848 155 308 875 291 243 543 948
Gross profit 125 930 913 73 377 144 58 742 068
Other income 3 563 103 2 578 224 2 163 315
Operating costs (82 412 897) (31 968 678) (25 644 271)
Trading profit from 47 081 119 43 986 690 36 176 325
operations
Revaluation of (25 567 866) - -
derivatives
Earnings before
interest, taxation,
depreciation and 21 513 254 43 986 690 36 176 325
amortisation
Depreciation (19 488 945) (10 195 481) (4 862 493)
Finance costs (6 527 695) - (6 266 896)
Interest income 8 847 050 1 645 693 10 841 183
Earnings from 2 641 740 - 915 213
associates
Net income before 4 343 663 35 436 902 35 888 119
taxation
Taxation 3 093 559 (6 643 048) (9 636 096)
Attributable earnings 7 437 222 28 793 854 26 252 023
Basic earnings per 6.82 26.18 44.17
share (cents)
Headline earnings per
share (cents) 6.85 26.18 44.15
Dividends 12.00 - -
Total number of shares
in issue (`000) 106 167 111 760 106 760
Weighted number of
shares in issue (`000) 109 089 109 979 59 436
Earnings attributable
to ordinary 7 437 222 28 793 854 26 252 023
shareholders
Adjusted for:
Loss (profit) on
disposal of property, 40 125 - (8 432)
plant and equipment
Headline earnings 7 477 347 28 793 854 26 243 591
Consolidated Balance Reviewed Unaudited Audited
Sheet
28 February 31 August 29 February
2009 2008 2008
R R R
Assets
Property, plant and 59 368 404 58 339 330 57 286 740
equipment
Investments 14 027 925 11 326 381 1 806 133
Deferred tax 9 652 736 - 6 643 044
Intangible assets 216 437 490 215 691 080 216 255 136
Current assets
Inventory 28 720 934 - 6 464 508
Accounts receivable 93 257 237 126 015 017 86 192 346
Loans receivable 1 124 364 - -
Receivable margin call 25 567 876 - -
payments
Bank and cash 13 785 144 23 664 320 19 878 646
Total assets 461 942 110 435 036 128 394 526 553
Equity and liabilities
Issued share capital 228 832 973 236 588 412 221 588 412
Reserves 20 315 860 55 269 923 26 476 066
Non-current liabilities 21 105 180 35 168 814 19 149 545
Current liabilities
Other financial 28 760 015 - 32 515 919
liabilities
Accounts payable 133 795 670 104 461 129 89 403 542
Derivative liability 25 567 876 - -
Shareholders for 14 952 - -
dividend
Provision for taxation 3 549 584 3 547 850 5 393 069
Total equity and 461 942 110 435 036 128 394 526 553
liabilities
Number of shares in 106 167 111 760 106 760
issue (`000)
Net asset value per
share (cents) 234.67 261.15 232.36
Net tangible asset
value per share (cents) 30.81 68.15 29.79
Consolidated statement Reviewed Unaudited Audited
of changes in equity 28 February 31 August 29 February
2009 2008 2008
R R R
Balance at 28 February 100 100 100
2007
Shares issued 222 567 692 222 567 692 222 567 692
Share issue expenses (979 380) (979 380) (979 380)
Profit for period 26 252 023 26 252 023 26 252 023
Revaluation reserve 224 043 224 043 224 043
Balance at 28 February 248 064 478 248 064 478 248 064 478
2008
Shares issues 17 500 000 17 500 000
Share issue expenses (2 500 000) (2 500 000)
Treasury shares (7 755 437)
purchased
Profit for the period
ended
29 February 2009 7 437 222 28 793 857
Dividends paid (13 411 200) -
Revaluation reserve (186 228) -
Balance at 29 February 249 148 833 291 858 335
2008
Consolidated cash flow Reviewed Unaudited Audited
statement 28 February 31 August 29 February
2009 2008 2008
(12 months) (6 months) (7 months)
R R R
Cash flows from
operating activities 60 217 277 19 457 244 27 476 452
Cash flows from
investing activities (59 878 999) (12 586 645) (134 351 067)
Cash flows from
financing activities (6 431 780) (3 084 925) 126 753 261
Net cash movement for
the period (6 093 502) 3 785 674 19 878 546
Cash at the beginning
of the period 19 878 646 19 878 646 100
Total cash at the end
of the period 13 785 144 23 664 320 19 878 646
SEGMENTAL ANALYSIS
Western Kwazulu Eastern
Cape Natal Gauteng Cape Consolidatio
n
Segment 113 670 770 70 887 648 390 545 628 30 744 251 605 848 296
revenue
Segment 20 709 984 12 915 212 71 154 562 5 601 378 110 381 137
result
Other 3 563 103
income
Interest (6 527 695)
expense
Interest 8 847 050
income
Operating
expenses (88 993 806)
Loss on
derivatives (25 567 866)
Income from
associate 2 641 740
Income tax 3 093 559
Profit for
the period 7 437 222
Segment 46 303 098 28 875 653 159 086 392 12 523 484 246 788 628
assets
Segment
liabilities 39 924 806 24 898 007 137 172 102 10 798 363 212 793 277
Capital
expenditure 4 179 411 2 606 375 14 359 458 1 130 395 22 275 638
Goodwill 215 153 482
Management
and
Segmental reporting LCR maintenance Other Total
business
Consolidated 544 655 457 13 754 834 47 438 004 605 848 296
revenue
COMMENTARY
The board of directors of Huge is pleased to present the financial statements
for the year ended 28 February 2009. 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")and in compliance with IAS 34. These financial
statements have been reviewed by the auditors of the company, Horwath Leveton
Boner, and their review opinion, without modification will be available at the
registered office of the company in due course.
COMPANY PROFILE
Huge Telecom is South Africa`s leading "managed telecommunications" company.
We help businesses in South Africa - many of them leaders in their fields - to
reduce their telecommunication costs by significant amounts.
Managed telecommunications is the process of identifying and implementing ways
to reduce all corporate telecommunication costs by providing customers with
access to and then managing the most efficient routes available. These routes
can involve switching communication protocols, such as replacing unnecessary
voice calls with more effective SMS messages.
We offer the corporate customer in South Africa professional outsourced
management of their communication services, through the efficient provision and
management of the different products and services provided by the
telecommunications companies operating in South Africa.
Huge Telecom was formed out of the merger of TelePassport (Proprietary) Limited
("TelePassport") and CentraCell (Proprietary) Limited ("CentraCell"). Before the
formation of Huge Telecom, both TelePassport and CentraCell were established and
respected Least Cost Routing ("LCR") operators, with 15 and 6 years` experience
in the South African Telecommunications industry respectively.
LCR is the process of identifying and implementing the most cost effective way
to reduce telecommunications costs (across all call categories including local,
national, international and mobile calls) by transmitting calls along the route
of least cost. Price is also not the sole factor used in determining the best
route. The quality of the route, and the type of customer and their
requirements, is now capable of being factored in, in order to determine the
best routing alternatives.
LCR has evolved over time into managed telecommunications, which makes use of
various protocols (sometimes called "methods") to ensure that calls are routed
in the most cost effective manner. In recent years most leading international
telecommunications companies, including the likes of Telkom, have been seen to
be moving their networks from circuit-switching-technology to packet-switching-
technology. The introduction of "alternative" telecommunication suppliers will
see the increase in route alternatives grow exponentially - and this will
ultimately drive the widespread adoption of telecommunication management
services in the future.
Investor and shareholder information is available at www.hugegroup.com.
BUSINESS OVERVIEW
HUGE TELECOM
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 reducing 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 the year ending 28 February 2009 include the full 12
months trading results for both CentraCell and TelePassport, trading as the
merged entity, Huge Telecom. The results of Huge for the period that ended on
28 February 2008 consisted of the trading results of TelePassport for seven
months and the trading results of CentraCell for only one month after listing.
These results are therefore not directly comparable to those reported for the
prior period.
Shareholders are advised of the following summary of certain financial events,
the majority of them once-off or exceptional items, which have led to an
estimated combined reduction in operating profit of approximately 27.9 cents per
share:
The costs of the iTalk Cellular bid would have been capitalised had the bid
succeeded. Instead, the cost of R3.4 million has been assigned to the income
statement, reducing EPS and HEPS by 2.2 cents per share.
Retention of human capital is vital for a company in managed telecommunications.
Huge has paid retention incentives in the form of restraint of trade agreements
to key staff members (specifically excluding all Huge directors). These
restraint agreements totalled R4.3 million. The effect of these payments is the
reduction of EPS and HEPS by 2.9 cents per share.
The company also incurred certain extraordinary and once-off integration and
relocation costs in the current financial year, which will not recur in the next
financial year. These integration costs related to the integration of Huge
Telecom and CentraCell, while relocation costs resulted from the move of the
head offices of Huge Telecom from Cape Town to Johannesburg. The estimated
effect of these costs is the reduction of the reported trading profit from
operations of R1 million, while the reduction in EPS and HEPS was 1.0 cents per
share.
The purchase of SSF and CFD contracts was fully explained in the trading
statement published on 21 May 2009. These contracts, having the nature of
synthetic debt instruments, have an interest payable component. The effect of
the interest paid on the SSF and CFD contracts held by the company in the
current financial year equates to a reduction in EPS and HEPS of 2.9 cents per
share.
Overall trading conditions in the second six months of the financial year have
been tougher with a commensurate rise in the level of bad debts. The write off
of bad debts at the revenue level has a geared effect on operating
profitability. The company has taken the necessary precautions to limit the
effect of the tougher trading conditions. However, the impact of this was a
reduction in trading profit from operations, and a reduction in EPS and HEPS
amounting to 2.0 cents per share.
TRADING ENVIRONMENT
The first half and more notably the second 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 the new 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 well placed to benefit from this enhanced cost consciousness.
The demand for telecommunications services by corporate entities also displays a
high level of price inelasticity. Communication is a vital part of any
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 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 companies seeking to reduce the costs of
cross-network traffic. This would increase the shift to on-network solutions.
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 has slowed
in the last twelve months but is still growing at around 12% per annum.
The scope for organic growth in managed telecommunications is capable of
exceeding the growth rates of the broader mobile telecommunications market.
The African telecommunications market, and particularly the advent of VoIP
technology, shows 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`s revenue is by nature recurring or annuity-based and the monthly
annuity book has a value in excess of R50.5 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 R620 million and
at a gross profit margin of 21% could contribute approximately R130 million to
the gross margin of an existing competitor with a marginal corresponding
increase to their overhead. The value of Huge Telecom is therefore underpinned
by this potential competitive marginal profit contribution and this further
underpins the inherent value of Huge.
Despite current market conditions we remain confident that the group is able to
build on its solid platform, retain its large strategic clients and grow further
in the next year. Additional focus and effort will be expended on retaining
existing clients and building new relationships.
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.
GENERAL REPURCHASE OF SHARES FOR CASH
From 28 October 2008 to the end of the 2009 financial year, Huge Telecom, being
a wholly owned subsidiary of the company, repurchased a number of its own shares
in accordance with Section 85 of the Companies Act. The dates of acquisition
and the number of shares acquired together with the cost of such shares were:
Dates Shares Cost
28 October 2008 (9 700) (24 893)
30 October 2008 (5 000) (14 182)
05 November 2008 (700) (2 252)
11 November 2008 (15 000) (42 021)
04 December 2008 (2 656 131) (3 227 659)
05 December 2008 (600 000) (741 333)
08 December 2008 (5 000) (6 764)
10 December 2008 (494 380) (599 192)
10 December 2008 494 380 568 201
11 December 2008 (10 115) (15 596)
12 December 2008 (9 900) (13 014)
02 January 2009 (1 028 500) (1 449 943)
06 January 2009 (893 000) (1 305 989)
06 January 2009 500 000 699 955
07 January 2009 (66 800) (104 315)
07 January 2009 (35 000) (57 394)
09 January 2009 (127 900) (227 245)
09 January 2009 20 000 33 937
12 January 2009 (16 000) (30 593)
13 January 2009 (36 100) (69 799)
21 January 2009 (4 850) (8 691)
28 January 2009 (5 000) (8 317)
30 January 2009 (10 000) (15 927)
30 January 2009 (215 791) (298 772)
13 February 2009 (2 000) (3 505)
13 February 2009 (283 793) (454 072)
16 February 2009 (2 000) (3 220)
17 February 2009 (42 137) (59 488)
24 February 2009 (14 820) (21 235)
26 February 2009 (18 000) (27 118)
26 February 2009 (60 000) (225 000)
(5 653 237) (7 755 437)
SUBSEQUENT EVENTS
On 5 March 2009 the company acquired, by way of a settlement agreement, an
additional 51 999 ordinary shares in Eyeballs Mobile Advertising (Proprietary)
Limited ("Eyeballs"), representing 52% of the ordinary share capital of
Eyeballs, from the Consumer Group (Proprietary) Limited ("the Consumer Group"),
the Benson Trust, the 59 Kloofnek Trust, and Nathan Lewin for the sum of the
outstanding shareholder claims on loan account held by the Consumer Group
against Eyeballs, which claims amounted to R807 435.47. R500 000 of these
claims was settled immediately while the balance is to be settled 19 months from
signature date of the settlement agreement.
Huge has granted to the Nash Lewin Trust, being a trust established for the
benefit of Nathan Lewin, the founder of Eyeballs and inventor of the proprietary
Eyeballs technology, a call option, whereby the Nash Lewin Trust may acquire 10
000 ordinary shares in the issued share capital of Eyeballs up and to 1 March
2012, and at a strike price of R137.50 per call option share.
CHANGES TO THE BOARD OF DIRECTORS AND COMPANY SECRETARY
With effect from 12 November 2009, Mr Fentse Emmanuel Lediga and Mr Julian Arie
Morelis resigned from the board of directors.
With effect from 15 November 2008, Mr Anton Daniel Potgieter was appointed to
the position of Executive Chairman of the company.
With effect from 15 November 2008, Mr James Charles Herbst was appointed to the
position of Group Chief Executive Officer of the company.
With effect from 1 March 2009, Mrs Michelle Allison Meth was appointed to the
board of directors.
Arcay Client Support (Proprietary) Limited were appointed as company secretary
with effect from 10 September 2009.
DIVIDENDS
The board of directors declared a maiden dividend on 29 August 2008 of 12 cents
per share to all shareholders registered as shareholders on 19 September 2008.
The dividend was paid on 29 September 2008 and was related to the results for
the 2008 financial year.
The board does not intend to declare a cash dividend for this financial year.
GOVERNANCE
The group recognises the need to conduct its business with integrity,
transparency and equal opportunity and subscribes to the spirit of good
corporate governance as set out in the King Report.
Johannesburg
29 May 2009
Designated Advisor
Arcay Moela Sponsors (Proprietary) Limited
Number 3 Anerley Road, Parktown, 2193
Auditors
Horwath Leveton Boner
No 3 Sandown Valley Crescent, Sandown, 2196
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:
AD Potgieter (Executive Chairman), BA McQueen*, D Tredoux*, KD Jarvis*, JC
Herbst (CEO), MA Meth (Financial Director), VM Mokholo, SP Tredoux, M Pillay
*Non-executive
Date: 29/05/2009 13:32:01 Produced by the JSE SENS Department.
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