| Mon 12 Oct 2009, 9:35 | | HUG - Huge Group Limited - Trading statement |
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HUG
HUG
HUG - Huge Group Limited - Trading statement
HUGE GROUP LIMITED
(Registration number 2006/023587/06)
Share code: HUG ISIN: ZAE000102042
("Huge" or "the Group" or "the company")
TRADING STATEMENT
In terms of paragraph 3.4(b) of the JSE Limited Listings Requirements, a listed
company is required to publish a trading statement as soon as it is satisfied
that a reasonable degree of certainty exists that the financial results for the
period to be reported upon next will differ, by at least 20%, from the financial
results for the corresponding period in the prior year.
Huge is currently finalising its financial results for the interim period dated
31 August 2009 ("1HY10") which results are expected to be announced during
November 2009.
Shareholders are accordingly hereby advised that a reasonable degree of
certainty exists that the company`s earnings per share ("EPS") and headline
earnings per share ("HEPS") will be 110% to 130% lower than the 26,18 (EPS) and
26,18 (HEPS) cents reported for the half year ended 31 August 2009.
The main reasons for the decrease in EPS and HEPS can be attributed to:
Revenue Effects
* A reduction in cellular airtime and other revenue of R14 million from R262
million for 1HY09 to R253 million for 1HY10. Weighted average daily
cellular airtime revenue is down by R75 000 per average calling day from
R1.918 million per average calling day to R1.843 million per average
calling day. There were 131.5 weighted calling days during 1HY10 versus 132
weighted calling days during 1HY09. This has had the effect of reducing
gross profit by R2.8 million based on current discounts received from the
mobile network operators, with the after tax impact on earnings amounting
to R2.016 million. An increased focus on sales coupled with the
appointments of a Managing Director: Sales and a Managing Director: Channel
and Distribution at Huge Telecom (Pty) Limited, should result in an
improvement during 2HY10.
Gross Profit Effects
* The contractual seasonality or timing patterns of mobile network contracts,
with a contract period of 24 months, has had the effect of reducing
connection incentive bonuses earned during 1HY10 by R13 million from R43
million in 1HY09 to R29 million during the period under review. This
difference is expected to reverse in 1HY11. This has had the effect of
reducing gross profit by R13 million with an after tax impact on earnings
of R9.4 million.
* Stock of airtime revenue on 6 000 unallocated SIM cards of R11.5 million
has been written off during 1HY10. The after tax impact of this write off
on earnings is R8.28 million. All 6 000 unallocated SIM cards have now been
allocated to customers.
Operating Expenses Effects
* Operating expenses during 1HY10 have increased by R11.6 million when
compared to 1HY09 as a result of:
* An increase in salary expenses of R 6.5 million. Huge Telecom has
resolved to invest in human capital to advance its medium term growth
aspirations.
* Non-recurring restraint of trade bonuses of R2.4 million paid to staff
(and not directors of the Company) in the prior half year but
amortised during the current half year.
* An increase in bad debts of R 2.6 million when compared to the same
period last year, mainly due to the weaker economic climate. The bad
debt ratio of 1.7% is however stable and within an acceptable range.
* Legal fees are R 2 million higher than the prior period. These fees
are considered non-recurring.
* Consulting and audit fees are R 1 million higher. The 2009 year end
audit was particularly complex as a result of the accounting treatment
of certain transactions. The increase in fees is expected to be non-
recurring.
* Depreciation and amortisation is R 1 million higher due to high
capital expenditure in the prior year. The Company`s infrastructure
was upgraded and vastly improved and this is expected to positively
contribute to the future success of the Company.
* The after tax impact of these items of operating expenses was R8.352
million.
Other Effects on Earnings
* The impairment of derivative contracts currently held by the Company
negatively impacted pre tax earnings by R 6.3 million in the current period
due to downward movements in the Huge share price. The total possible
future exposure to these derivatives contracts amounts to R6.9 million,
which represents the net total possible future loss to the Company in this
regard.
This trading statement has not been reviewed or reported on by the Company`s
external auditors.
Johannesburg
09 October 2009
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
Date: 12/10/2009 09:35:17 Produced by the JSE SENS Department.
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