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HUG
HUG
HUG - Huge Group Limited - Unaudited Interim Results for the Six Months
Ended 31 August 2009
HUGE GROUP LIMITED
(Registration number 2006/023587/06)
Share code: HUG & ISIN: ZAE000102042
("Huge" or "the Group" or "the company")
UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 AUGUST 2009
Income Statement
Unaudited Unaudited Audited
31 31 28 February
August2009 August2008 2009
(6 months) (6 months) (12 months)
R R R
Revenue 282 009 503 308 875 291 608 539 827
Cost of sales 208 404 635 217 695 140 495 467 018
Gross profit 73 604 868 91 180 151 113 072 809
Other operating
income 2 038 892 2 578 224 3 563 103
Operating costs (72 514 109) (59 967 166) (89 043 728)
Operating profit 3 129 651 33 791 209 27 592 184
Interest received - 1 645 696 6 205 310
Income from
equity accounted
investments 329 780 - 2 641 740
Minority interest (101 263) - -
Fair value
adjustments on
SSF`s -
and CFD`s (9 434 325) (25 567 876)
Finance costs (4 977 125) - (6 527 695)
(Loss)/Profit
before taxation (11 053 282) 35 436 905 4 343 663
Taxation 5 198 665 (6 643 048) 3 093 559
Net(loss)/profit
for the period (5 854 617) 28 793 857 7 437 222
Basic
(loss)/earnings
per share (cents) (5.43) 26.18 6.82
Headline
(loss)/earnings
per share (cents) (5.46) 26.18 6.85
Total number of
shares in issue
(`000) 106 167 111 760 106 167
Weighted number
of shares in
issue (`000) 107 858 109 979 109 089
Reconciliation of headline earnings
(Loss)/profit for (5 854 617) 28 793 857 7 437 222
the period
(Profit)/loss on (37 168) - 40 125
sale of property,
plant and
equipment
Headline earnings (5 891 785) 28 793 857 7 447 347
Statement of Unaudited Unaudited Audited
financial 31 August 31 August 28 February
position 2009 2008 2009
R R R
Assets
Non-current
assets
Property, plant
and equipment 50 143 113 58 339 330 59 627 060
Intangible assets 6 612 873 537 599 1 284 009
Goodwill 223 475 925 215 153 481 215 153 482
Investments 2 962 750 11 326 381 9 027 925
Deferred tax
asset 14 955 720 - 9 652 736
298 150 381 285 356 791 294 745 212
Current assets
Inventories 23 648 593 17 601 851 28 720 933
Loans receivable 1 096 064 3 750 000 6 124 364
Trade and other
receivables 101 409 112 104 663 166 93 257 238
Current taxation
receivable 1 797 816 - -
Cash and cash
equivalents - 23 664 320 13 785 144
127 951 585 149 679 337 141 887 679
Total assets 426 101 966 435 036 128 436 632 891
Equity and
Liabilities
Equity
Share capital 10 617 11 176 10 617
Share premium 228 822 360 236 577 236 228 822 360
Minority interest (888 476) - -
Revaluation of
reserves 296 467 224 043 296 467
Retained income 14 423 429 55 045 880 20 278 045
242 664 397 291 858 335 249 407 489
Non-current
Liabilities
Shareholders`
loans 18 416 104 6 811 818 17 035 069
Other financial
liabilities - 21 265 810 1 516 202
Finance lease
obligations 7 025 385 7 091 186 9 484 917
25 441 489 35 168 814 28 036 188
Current
liabilities
Trade and other
payables 107 820 791 99 740 529 125 732 940
Other financial
liabilities 24 659 930 - 25 702 333
Finance lease
obligations 4 833 657 4 720 600 4 534 184
Shareholders for
dividends 14 952 - 14 952
Current taxation
payable - 3 547 850 3 204 805
Bank overdraft 20 666 750 - -
157 996 080 108 008 979 159 189 214
Total equity and
liabilities 426 101 966 435 036 128 436 632 891
Number of shares
in issue (`000) 106 167 111 760 106 167
Net asset value
per share (cents) 228.57 261.15 234.92
Net tangible
asset value per
share (cents) 18.07 68.63 31.05
Statement of changes in equity
Unaudited results for the 6 months period ended 31 August 2009
Share Share Revaluation
Capital Premium Reserve
R R R
Opening Balance
1 March 2009 10 617 228 822 360 296 467
Minority interest
at acquisition - - -
Losses for the
6 months - - -
Closing balance
31 August 2009 10 617 228 822 360 296 467
Retained Minority Total
Income Shareholder Equity
R s R
R
Opening Balance
1 March 2009 20 278 045 - 249 407 489
Minority interest
at acquisition - (989 739) (989 739)
Losses for the
6 months (5 854 616) 101 263 (5 753 353)
Closing balance
31 August 2009 14 423 429 (888 476) 242 664 397
Unaudited results for the 6 months period ended 31 August 2008
Share Share Revaluation
Capital Premium Reserve
R R R
Opening balance
1 March 2008 10 676 221 577 736 224 043
Shares issued 500 14 999 500 -
Profit for the
6 months - - -
Closing balance
31 August 2009 11 176 236 577 236 224 043
Retained Minority Total
Income Shareholders Equity
R R R
Opening balance
1 March 2008 26 252 023 - 248 064 478
Shares issued - - 15 000 000
Profit for the6
months 28 793 857 - 28 793 857
Closing balance
31 August 2009 55 045 880 - 291 858 335
Audited results for the year ended 28 February 2009
Share Share Revaluation
Capital Premium Reserve
R R R
Opening balance
1 March 2008 10 676 221 577 736 224 043
Shares issued 500 14 999 500 -
Share repurchase (559) (7 754 876) -
Dividends paid
Profit for the
year - - -
Deferred taxation - 72 424
Closing balance
31 August 2009 10 617 228 822 360 296 467
Retained Minority Total
Income Shareholders Equity
R R R
Opening balance
1 March 2008 26 252 023 - 248 064 478
Shares issued - - 15 000 000
Share repurchase - - (7 755 435)
Dividends paid
(13 411 200) - (13 411 200)
Profit for the
year 7 437 222 - 7 437 222
Deferred taxation - - 72 424
Closing balance
31 August 2009 20 278 045 - 249 407 489
Statement of cash flows
Unaudited Unaudited Audited
31 August 31 August 29 February
2009 2008 2009
(6 months) (6 months) (12 months)
R R R
R
Cash flows from (25 393 896) 19 457 244 26 241 887
operating
activities
Cash flows from (3 813 781) (12 586 645) (34 311 120)
investing
activities
Cash flows from (5 244 217) (3 084 925) 1 975 731
financing
activities
Net cash (34 451 894) 3 785 674 (6 093 502)
movement for the
period
Cash at the 13 785 144 19 878 646 19 878 646
beginning of the
period
Total cash at (20 666 750) 23 664 320 13 785 144
the end of the
period
COMMENTARY
These financial statements have been prepared in accordance with accounting
policies and methods of computation that are consistent with those of the prior
period and with International Financial Reporting Standards ("IFRS"). This
announcement is prepared in accordance with IAS 34 - Interim Financial
Reporting.
ACCOUNTING POLICIES
The accounting policies applied are consistent with those of the annual
financial statements.
SEGMENT INFORMATION
Business segments
2009 August
Consolidated revenue
2008 August
Consolidated revenue
2009 February
Consolidated revenue
Geographical
Western Cape KwaZulu -
Natal
30 August 2009
Segment revenue 62 132 664 38 176 809
Segment result 16 216 711 9 964 200
Other income - -
Interest income - -
Interest expense - -
Income from equity accounted - -
associate
Minority interest - -
Operating costs (15 976 393) (9 816 539)
Loss on derivatives - -
Taxation - -
Profit for period
Segment assets 44 642 806 27 430 337
Segment liabilities 40 415 180 24 832 713
Capital expenditure 479 855 294 842
Depreciation 2 504 726 1 539 005
Goodwill - -
30 August 2008
Segment revenue 57 695 636 35 980 296
Segment result 16 700 208 10 414 626
Other income - -
Interest income - -
Interest expense - -
Income from equity accounted - -
investments
Operating costs (10 983 357) (6 849 469)
Loss on derivatives - -
Taxation - -
Profit for period - -
Segment assets 41 072 463 25 613 712
Segment liabilities 26 744 560 16 678 509
Capital expenditure 2 101 057 1 310 266
Depreciation 1 904 441 1 187 652
Goodwill - -
28 February 2009
Segment revenue 113 670 770 70 887 648
Segment result 20 709 984 12 915 212
Other income - -
Interest income - -
Interest expense - -
Income from equity accounted - -
investments
Operating costs (16 308 906) (10 170 600)
Loss on derivatives - -
Taxation - -
Profit for period - -
Segment assets 41 322 412 25 769 585
Segment liabilities 34 972 330 21 809 531
Capital expenditure 4 179 411 2 606 375
Depreciation 3 656 565 2 280 316
Goodwill - -
LCR Other Consolidated
2009 August
Consolidated revenue 249 649 373 32 360 130 282 009 503
2008 August
Consolidated revenue 276 449 706 32 425 585 308 875 291
2009 February
Consolidated revenue 544 655 317 63 884 510 608 539 827
Geographical
Eastern
Gauteng Cape Consolidated
30 August 2009
Segment revenue 163 966 910 17 733 120 282 009 503
Segment result 42 795 588 4 628 369 73 604 868
Other income - - 2 038 892
Interest income - - -
Interest expense - - (4 977 125)
Income from equity
accounted associate - - 329 780
Minority interest - - (101 263)
Operating costs (42 161 397) (4 559 780) (72 514 109)
Loss on derivatives - - (9 434 325)
Taxation - - 5 198 665
Profit for period (5 854 617)
Segment assets 117 811 512 12 741 386 202 626 041
Segment liabilities 106 654 886 11 534 790 183 437 569
Capital expenditure 1 266 329 136 954 2 177 980
Depreciation 6 609 925 714 867 11 368 523
Goodwill - - 223 475 925
30 August 2008
Segment revenue 199 594 274 15 605 085 308 875 291
Segment result 59 548 451 4 516 866 91 180 151
Other income - - 2 578 224
Interest income - - 1 645 696
Interest expense - - -
Income from equity
accounted
investments - - -
Operating costs (39 163 698) (2 970 643) (59 967 166)
Loss on derivatives - - -
Taxation - - (6 643 048)
Profit for period - - 28 793 857
Segment assets 142 087 498 11 108 974 219 882 647
Segment liabilities 92 521 055 7 233 669 143 177 793
Capital expenditure 7 268 470 568 278 11 248 071
Depreciation 6 588 289 515 099 10 195 481
Goodwill - - 215 153 481
28 February 2009
Segment revenue 393 237 158 30 744 251 608 539 827
Segment result 73 846 235 5 601 378 113 072 809
Other income - - 3 563 103
Interest income - - 6 205 310
Interest expense - - (6 527 695)
Income from equity
accounted
investments - - 2 641 740
Operating costs (58 153 061) (4 411 029) (89 043 597)
Loss on derivatives - - (25 567 876)
Taxation - - 3 093 559
Profit for period - - 7 437 222
Segment assets 143 211 042 11 176 370 221 479 409
Segment liabilities 120 984 663 9 458 878 187 225 402
Capital expenditure 14 359 458 1 130 395 22 275 639
Depreciation 12 563 083 988 982 19 488 946
Goodwill - - 215 153 482
The main reasons for the decrease in EPS and HEPS can be attributed to:
Revenue Effects
There has been 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. To counter this in the
next period, the company has initiated an increased focus on sales, a widely
expanded product and service offering, and the appointments of a Managing
Director: Sales and a Managing Director: Channel and Distribution at Huge
Telecom (Pty) Limited. This should result in an improvement in this metric
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, which will produce an increase in billed revenues, and
correspondingly a dramatic decrease in the amount of unused airtime written off.
This reversal is considered permanent for the foreseeable future, and means that
Huge Telecom (Pty) Ltd is now operating at a far higher level of efficiency than
at the beginning of the period. Further, clearing this primary efficiency
metric of airtime stock now opens the way for the company to begin implementing
and reaping the benefits of secondary operational efficiency strategies in the
next period.
Operating costs Effects
Operating costs during 1HY10 have increased by R11.6 million when compared to
1HY09 as a result of:
An increase in salary expenses of R6.5 million. Huge Telecom has resolved to
invest in human capital to advance its medium term growth aspirations, and the
company now considers itself well prepared for rapid expansion off its existing
structures.
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 R2.6 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 for the current operating
conditions.
Legal fees are R2 million higher than the prior period. These fees are
considered non-recurring. Consulting and audit fees are R1 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 R1 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. Again, the company considers itself very well prepared
to handle rapid future expansion in both customers and the range of products and
services provided.
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 reduced
impacted pre-tax earnings by R9.4 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 R10.2 million, which represents the net total
possible future loss to the company in this regard.
Future Prospects
Management is pleased that the integration of TelePassport (Proprietary) Limited
and CentraCell (Proprietary) Limited is finally complete, after taking far
longer than expected and impacting on the business during the period under
review. Huge Telecom (Proprietary) Limited, being a combination of the
businesses of TelePassport and CentraCell, has a completely refocused and
balanced executive team, the last position filled being that of the managing
director: direct. This recent appointment augments the other two separately
created business focus areas of Channel and Distribution, and Services. This
completes the company`s transition to a fully fledged managed telecommunications
service provider with a focus on communications expense management services. The
absence of revenue growth during the period is largely attributed to the
integration and the diversion this created. Revenue growth should therefore
resume with greater impetus in the new financial year. Management is hopeful of
seeing the benefits of its recent restructuring in the last 6 months of the
current financial year.
The company continues to perform well at an operating level. Notwithstanding the
reductions in revenue over the period, the company has continued to maintain
gross margins at acceptable levels. Adjusting for the seasonality of connection
incentive bonuses, and accounting for depreciation as part of the cost of sales
in the August 2009 results, gross margins for the period would have increased by
1.24%. This is equivalent to improved efficiencies.
Cash flow generation is good and management is quietly optimistic about the
future prospects of the business.
Director changes
With effect from 1 March 2009, Mrs Michelle Allison Meth was appointed to the
board of directors as executive financial director. Michelle joins the Huge
Group from the TMS Group (a wholly owned subsidiary of Bidvest) where she was
the finance director. Prior to the position she held at the TMS Group she was
employed at Cell C as their executive head of finance. Her responsibility at
Cell C encompassed the entire finance function and she had 7 divisions reporting
to her (Treasury, Financial Control, Billing and Commissions, Accounts Payable
and General Ledger, Fixed Assets and Property). Michelle has experience in
preparing annual financial statements, internal audit controls, investor
relations, tax planning, budgeting and was part of the fund raising team at Cell
C. Her prior experience as group financial accountant at Primedia Limited in
2000 also provided her with valuable experience in consolidating accounts across
a complex group structure with many subsidiaries and associates and regular
changes in the shareholding structures. She completed her BCom (Hons) at RAU in
1998 and in 2000 she qualified as a Chartered Accountant (SA).
With effect from 1 August 2009 Stephen Peter Tredoux, an executive director of
Huge Group Limited, resigned as an employee of Huge Telecom (Proprietary)
Limited, being a wholly owned subsidiary of Huge. Mr Stephen Tredoux will,
however, remain on the board of directors of Huge as a non-executive director.
With effect 7 September 2009 the role of Mr Ken Jarvis changed from Non-
Executive Director to Lead Independent Director. This change is in line with the
imminent implementation of King III and further enhances the company`s
compliance therewith.
With effect from 7 October 2009, Mr Michael Beamish was appointed to the board
of directors of Huge as a non-executive director. Mr Beamish is currently a
shareholder in Praesidium Capital Management (Pty) Limited. Mr Beamish has
managed the Praesidium SA Hedge Fund since 2003 and co-managed the Praesidium
Structured Finance Fund since 2006. Prior to launching the Praesidium SA Hedge
Fund in December 2003, Mr Beamish spent six years at the Johannesburg Office of
HSBC. He has spent time with Credit Suisse Financial Products, Natwest Markets,
and Liberty Life.
Dividends
No dividend has been paid or declared in the period under review. In the
comparative period 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.
Acquisitions during the period
Huge increased its shareholding in Eyeballs Mobile Advertising (Proprietary)
("Eyeballs") Limited on 9 March 2009. The total shareholding in Eyeballs was
increased from 25% to 77%. The cost of the additional 52% was R807 435.
Eyeballs is a technology provider of innovative and affordable real-time,
permission based, high impact targeted advertising to mobile phones and Internet
users.
Eyeballs Mobile Advertising is still in development phase. As such it did not
contribute to group revenues for the period. Eyeballs incurred costs of R1.168
million. These costs are consolidated as part of the group results from the
period commencing the day the additional 52% shareholding was acquired until 31
August 2009.
Eyeballs is expected to start operations in December 2009, and revenue from
operations should begin to be realised in the next period.
Details of the net assets acquired and goodwill are as follows:
Additional purchase consideration:
Cash paid R500 000
Provisional fair value of net identifiable assets
acquired (R2 237 672)
Provisional goodwill R2 737 672
The goodwill is attributable to the software development of the Eyeballs
technology.
Johannesburg
2 December 2009
Designated Advisor
Arcay Moela Sponsors (Proprietary) Limited
Date: 02/12/2009 07:21:01 Produced by the JSE SENS Department.
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