| Thu 1 Dec 2011, 7:10 | | HUG - Huge Group Limited - Unaudited interim results of huge for the six months |
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HUG
HUG
HUG - Huge Group Limited - Unaudited interim results of huge for the six months
ended 31 August 2011
HUGE GROUP LIMITED
(Registration number 2006/023587/06)
Share code: HUG ISIN: ZAE000102042
("Huge" or "the Group" or "the Company")
UNAUDITED INTERIM RESULTS OF HUGE FOR THE SIX MONTHS ENDED 31 AUGUST 2011
HIGHLIGHTS FOR 31 AUGUST 2011
- Operating profitability restored to R8.6 million for the first six months
of the 2011/2012 financial year
- Basic earnings per share, although down 70.5%, and headline earnings per
share, although down 88.4%, impacted by non-cash effect of fully cash
collateralized derivative instruments
- No long-term debt
The board of directors of Huge is pleased to present the unaudited interim
results for the six months ended 31 August 2011.
Condensed Consolidated Statements of Financial Performance
Unaudited Unaudited Audited
31 August 31 August 28 February
2011 2010 2011
(6 months) (6 months) (12 months)
R R R
Revenue 212 337 255 275 371 023 523 771 553
Gross profit 46 375 763 52 590 049 89 667 748
Other income 381 210 614 916 1 200 715
Operating expenses (38 190 124) (57 440 528) (114 763 516)
Operating (loss)/profit
from operations 8 566 849 (4 235 563) (23 895 053)
Investment income 1 585 937 3 202 968 3 733 896
Net change in fair
value of financial
instruments (6 350 925) 13 705 772 5 126 817
Net change in fair
value of investment in
associate company held
for sale 1 896 354 - -
(Loss)/Income from equity
accounted investments 1 298 457 (483 934) (952 298)
Finance costs (775 426) (1 419 221) (2 999 875)
Profit / (loss)
before taxation 6 221 246 10 770 022 (18 986 513)
Income tax expense (3 570 057) (1 676 910) 2 111 745
Net profit / (loss)
for the period 2 651 189 9 093 112 (16 874 768)
Non-controlling interest (28 881) (464 005) (1 897 956)
Net profit / (loss)
attributable to owners
of the Company 2 680 070 9 557 117 (14 976 812)
Earnings before
interest, taxation,
depreciation and
amortisation 11 829 115 21 388 735 102 909
Basic earnings per share (cents) 2.80 9.49 (15.33)
Headline earnings per share (cents) 1.09 9.42 (15.31)
Diluted earnings per share (cents) 2.80 9.49 (15.33)
Diluted headline
earnings per share(cents) 1.09 9.42 (15.31)
Operational earnings per share (cents) 7.56 (0.31) (11.56)
Headline operational earnings per
Share (cents) 5.86 (0.38) (11.53)
Dividends - - -
Note: Operational earnings and headline operational earnings per share reflect
the earnings per share of the company independent of the effect of the fair
value adjustment of the derivative instruments
Total number of
shares in issue (`000) 95 901 95 901 95 901
Weighted number of
shares in issue (`000) 95 901 100 752 97 671
Earnings/(loss)
attributable to ordinary
shareholders 2 680 070 9 557 117 (14 976 812)
Adjusted for:
Profit on
disposal of property,
plant and equipment (1 896 354) (66 600) (104 556)
Impairment of goodwill on
Acquisition of Ambient Mobile
(Pty) Limited - - 97 774
Tax effect 265 490 - 29 276
Headline earnings/(loss) 1 049 206 9 490 517 (14 954 318)
Earnings/(loss)
attributable to ordinary
shareholders 2 680 070 9 557 117 (14 976 812)
Adjusted for:
Net change in
fair-value of financial
instruments 6 350 925 (13 705 772) 5 126 817
Tax effect (1 778 259) 3 837 616 (1 435 509)
Operating earnings/(loss) 7 252 736 (311 039) (11 285 504)
Adjusted for:
Profit on
disposal of property,
plant and equipment (1 896 354) (66 600) (104 556)
Impairment of goodwill on
Acquisition of Ambient Mobile
(Pty) Limited - - 97 774
Tax effect 265 490 - 29 276
Headline operating
earnings/(loss) 5 621 872 (377 639) (11 263 010)
Condensed Consolidated Statement of Financial Position
Unaudited Unaudited Audited
31 August 31 August 28 February
2011 2010 2011
R R R
Assets
Property, plant and equipment 37 325 921 36 856 468 38 901 191
Goodwill 215 153 482 215 153 482 215 153 482
Intangible assets 16 639 409 22 196 773 17 716 060
Investments in joint venture 552 369 383 042 387 558
Investment in associates - 2 063 986 1 811 107
Investments 305 585 389 409 305 585
Loans to associate companies - 234 972 -
Deferred tax 6 990 144 3 996 975 10 511 201
Current assets
Inventories 49 742 467 28 200 363 43 749 852
Trade and other receivables 67 589 512 135 770 718 78 041 833
Loans to associate companies 1 850 942 1 710 925 1 779 083
Current tax receivable 1 429 577 1 797 816 1 429 577
Cash and cash equivalents 5 386 556 13 540 511 11 933 887
Investment in associate -
held for sale 4 900 000 - -
Total assets 407 865 964 462 295 440 421 720 416
Equity and liabilities
Share capital 9 590 9 590 9 590
Share premium 221 108 366 221 073 428 221 108 366
Reserves 28 888 1 215 038 28 888
Retained earnings 17 010 159 38 864 016 14 330 089
Equity attributable to equity
holders of parent 238 157 003 261 162 072 235 476 933
Non-controlling interest (1 301 686) 257 492 (1 272 805)
Non current liabilities
Finance lease obligations 101 751 1 293 153 439 094
Deferred tax 2 385 861 - 2 385 861
Current liabilities
Loans from associate companies 1 191 937 809 006 1 212 057
Loans from shareholders 601 103 4 425 603 654 951
Other financial liabilities 1 341 979 850 649 1 630 832
Finance lease obligations 499 604 5 547 100 3 674 139
Trade and other payables 140 279 143 187 229 291 155 221 410
Shareholders for dividends 14 952 14 952 14 952
Bank overdraft 24 267 196 - 21 955 871
Current tax payable 327 121 706 122 327 121
Total equity and
liabilities 407 865 964 462 295 440 421 720 416
Number of shares in issue (`000) 95 901 95 901 95 901
Net asset value per share (cents) 248.34 272.32 245.54
Net tangible asset value per
share (cents) 6.64 24.83 2.72
Condensed Consolidated Statement of Comprehensive Income
Unaudited Unaudited Audited
31 August 31 August 28 February
2011 2010 2011
R R R
Net profit (loss) for the
period attributable to owners
of the Company 2 680 070 9 557 117 (14 976 812)
Other comprehensive income
- Gains on property revaluation - - (624 999)
Taxation related to components
of other comprehensive income - - 140 603
Other comprehensive income for
the period net of taxation - - (484 396)
Total comprehensive
income/(loss) for the period
attributable to owners of the
Company 2 680 070 9 557 117 (15 461 208)
Condensed Consolidated Statement of Changes in Equity
Unaudited Unaudited Audited
31 August 31 August 28 February
2011 2010 2011
R R R
Balance at 1 March 234 204 128 257 683 078 257 683 078
Total comprehensive income/
(loss) for the period 2 680 070 9 557 117 (15 461 208)
Purchase of own shares - (5 356 626) (5 321 685)
Share option reserve - - (701 754)
Non-controlling interest (28 881) (464 005) (1 897 956)
Acquisition of subsidiaries - - (96 347)
Balance at 28 February/
31 August 236 855 317 261 419 564 234 204 128
Condensed Consolidated Statement of Cash Flows
Unaudited Unaudited Audited
31 August 31 August 28 February
2011 2010 2011
(6 months) (6 months) (12 months)
R R R
Cash flows from
operating activities (2 912 275) 22 043 101 7 463 545
Cash flows from
investing activities (2 091 802) (9 698 693) (8 345 175)
Cash flows from financing
activities (3 854 579) (10 234 168) (20 575 794)
Net cash movement for
the period (8 858 656) 2 110 240 (21 457 424)
Cash at the beginning
of the period (10 021 984) 11 430 271 11 430 271
Cash and cash equivalents
acquired - 5 169
Total cash at the end
of the period (18 880 640) 13 540 511 (10 021 984)
SEGMENTAL REPORTING
The directors have considered the implications of IFRS 8: Operating Segments and
are of the opinion that the current operations of the Group can be split into
two main operating segments, namely `Managed Telecommunications` (including Huge
Telecom (Pty) Limited ("Huge Telecom") and CentraCell (Pty) Limited)
("CentraCell") and `Electronic Media` (including Eyeballs Mobile Advertising
(Pty) Limited ("Eyeballs")). The operations within each of these main segments
are substantially similar to one another and the risk and returns of these
operations are likewise similar. Resource allocation and management of the
current operations are performed on an aggregate basis within each of the two
main segments. Performance is measured based on segmental profit/loss before
tax as shown in the management internal report that is reviewed by the Group`s
CEO, the chief operating decision maker (CODM). Eyeballs is still in the start-
up phase of its business and as such minimal revenue is reported.
Revenue by operating segment
Managed Electronic Corporate
Tele- Media Office
communications Grouping
R R R
Total revenue 212 312 255 25 000 -
Cost of sales (165 960 573) - (919)
Gross profit 46 351 682 25 000 (919)
Other income 381 210 - -
Operating expenses (34 946 239) (1 696 489) (1 547 396)
Operating profit 11 786 653 (1 671 489) (1 548 315)
Investment income 1 223 435 - 362 502
Net change in fair-value
of financial instruments (2 102 902) - (4 248 023)
Income from equity-accounted
investments 1 298 457 - -
Gain on fair-value of assets
held for sale 1 896 354 - -
Finance costs (563 151) (173 485) (38 790)
Profit before income tax 13 538 846 (1 844 974) (5 472 626)
Income tax (3 570 057) -
-
Profit after income tax 9 968 789 (1 844 974) (5 472 626)
Revenue by operating segment
Total
R
Total revenue 212 337 255
Cost of sales (165 961 492)
Gross profit 46 375 763
Other income 381 210
Operating expenses (38 190 124)
Operating profit 8 566 849
Investment income 1 585 937
Net change in fair-value
of financial instruments (6 350 925)
Income from equity-accounted
investments 1 298 457
Gain on fair-value of assets
held for sale 1 896 354
Finance costs (775 426)
Profit before income tax 6 221 246
Income tax (3 570
057)
Profit after income tax 2 651 189
COMMENTARY
COMPANY PROFILE
Huge is an investment holding company listed on the Alternative Exchange (AltX)
of the JSE Limited`s Stock Exchange ("JSE"). The Group is focused on building
shareholder value. Its treasury operations are mandated to maximise the
financial position of the Company in the debt and equity markets using cash and
derivative-based instruments.
Huge Telecom, a wholly owned subsidiary of Huge and the principal trading
operation of the Group, is one of South Africa`s leading "Communication Expense
Management" and "Managed Telecommunications" companies.
Eyeballs (77% owned by Huge) is a technology provider whose "Eyeballs"
technology consists of a software application that recipient users download and
install on their mobile phones. It displays advertising and content images on
the phone screen when calls are made or messages are received.
Huge Media (Pty) Limited`s ("Huge Media") (100% owned by Huge) strategy is to
delivery residential voice services to consumers.
Further investor and shareholder information is available at www.hugegroup.com.
ACCOUNTING POLICIES
The condensed consolidated financial statements for the period ended 31 August
2011 have been prepared in accordance with the recognition and measurement
criteria of International Financial Reporting Standards (IFRS) and the
presentation and disclosure requirements of International Accounting Standard
34, Interim Financial Reporting, as well as AC500 as issued by the Accounting
Practices Board, the Listings Requirements of the JSE and the South African
Companies, Act 71 of 2008. The accounting policies applied to the six month
period ended 31 August 2011 are consistent, in all material respects, with those
used in the Annual Financial Statements of the prior periods.
FINANCIAL OVERVIEW
GROUP`S FINANCIAL PERFORMANCE
Huge continues to focus on operational efficiencies, treasury management and
cost containment in an effort to further increase operating profitability and
shareholder value.
The Group has achieved considerable success in each of these areas in the last
six months and continues to strive for further improvement.
INVESTMENT HOLDING ACTIVITIES
The Company has been acquiring its own shares under the general authority
granted to the directors at the last five annual general meetings. The most
recent of these AGM`s was held on Friday, 28 October 2011.
The dates of the acquisitions of the shares are set out below:
Transaction Purchaser Number of Price Total
Date ordinary per value
shares share of
acquired transaction
26 Aug 2011 Huge 401 000 75.00 300 750.00
30 Aug 2011 Huge 200 000 81.99 163 980.00
Total 601 000 464 730.00
The acquisitions recorded above were settled after 31 August 2011, and
accordingly have no impact on share capital and share premium at 31 August 2011.
At the beginning of the 2012 financial year the Company had a total of 111 760
000 ordinary shares in issue. In July 2011 a total of 6 212 105 ordinary shares
were cancelled, delisted from the JSE, and returned to authorised share capital,
leaving a total of 105 547 895. At the beginning of the 2012 financial year the
Group held 9 646 926 ordinary shares as treasury shares. Adding the 601 000
ordinary share purchased above to the existing treasury shares gives the Group
exposure over 10 247 926 ordinary shares giving the Company the future prospect
of reducing the number of ordinary shares in issue to 95 299 969.
TELECOMMUNICATIONS ACTIVITIES
Huge Telecom is the Group`s principal revenue generator.
Total turnover generated in the six months ended 31 August 2011, showed a
decrease of 23% to R212.3 million, from the R275.3 million generated during the
six months to the end of August 2010. This is attributable to the loss of a
number of high revenue generating, but low profit generating clients.
Gross profit for the first six months of the year amounted to R46.4 million, a
decrease of 12% from the R52.6 million recorded in the first half of the 2010
financial year. The decrease in gross profit was primarily due to the decrease
in total turnover noted above but this decrease was off-set by gross profit
margins that increased from 19.1% to 21.8%.
MEDIA ACTIVITIES
Eyeballs continued to develop its proprietary in-application mobile phone
advertising technology, in support of its technology provider strategy.
The Eyeballs technology is available for all Symbian Smartphones (which includes
most Nokia phones and several LG, Samsung and Sony Ericsson models). The
BlackBerry version was successfully released in June 2010. Other operating
systems will continually be considered based on the size of the addressable
market.
The technology was independently valued at R13.7 million (R16 million: 2010) on
the acquisition of a controlling interest in Eyeballs by the Group and is
recognized as a technology-related intangible asset of the Group in terms of
IAS38: Intangible Assets and IFRS 3: Business Combinations.
The board of directors of Huge, the holding company Huge Media, passed a
resolution on 4 March 2011 to discontinue the media operations of Huge Media,
and to dispose of the application user base (consisting of all users who have
downloaded and installed the Goodyz software application on a mobile phone), the
advertiser user base (consisting of all entities that have run, or considered
running, or been solicited for the purposes of running, advertising campaigns or
test advertising campaigns on the Goodyz advertising platform), various domains,
various Facebook Presences, various Twitter accounts, various trademarks, and
various web-sites to Kamore Trading and Investments (Pty) Ltd, a related party
to Huge and Huge Media, for a sum of R52 500. Huge Media has retained all other
assets and liabilities.
Huge plans to use Huge Media to generate revenue from mobile operations,
specifically the sale of telephony services to residential subscribers in direct
competition to Telkom and Neotel.
GROUP OPERATING EXPENSES
Group operating expenses incurred during the period decreased by R19.2 (a
reduction of 33.5% over the prior period), which more than compensated for the
reductions in gross profit recorded above. Further cost reductions have taken
place after 31 August 2011. Because Huge Telecom`s fixed overhead platform has
the capacity to support a twofold increase in volumes, the Group can leverage
the existing overhead platform to increase operating profit margins in the
future.
GROUP NET CHANGE IN FAIR VALUE OF FINANCIAL INSTRUMENTS
The losses on single stock futures (SSFs) contracts and contracts for difference
(CFDs) decreased the operating profitability of the Group by R6.4 million in the
six month period ended 31 August 2011 - this compared to the gain of R13.7
million in the comparative prior period.
GROUP PROFIT
The Group reported net profit before taxation of R6.2 million for the six month
period ended 31 August 2011, reflecting a decrease of 42% compared to the profit
of R10.7 million reported in the six months ended 31 August 2010. Removing the
effects of the fair-value adjustment relating to the SSFs and CFDs referred to
above, the Group reported an adjusted net profit before taxation of R12.6
million for the six month period ended 31 August 2011, reflecting an increase of
R15.5 million when compared to the adjusted net loss before taxation of R2.9
million recorded in the first six month period that ended on 31 August 2010.
BALANCE SHEET CONSIDERATIONS
Long-term debts, including finance lease obligations of R101 751, and loans from
shareholders, were extinguished after the end of the period. Accordingly the
Company no longer has any long-term debt.
The board of directors has considered the current profitability of the Group,
the new business model that has been implemented at Huge Telecom, and the
possibility of future cost reductions in the face of further industry changes
and challenges, and is of the view that, as a result thereof, no impairment of
goodwill is required in the current period.
FUTURE PROSPECTS
Huge Telecom continues to focus on ensuring that the company has the required
flexibility to navigate any short term telecommunications industry changes.
Investor interest in the Eyeballs technology is growing and is indicative of the
underlying value of this investment.
Investment Holding Activities
The Group will continue to consider the purchase of shares in the Company that
trade at a discount to its fair value by making use of its general authority to
repurchase shares. This general authority is limited to a maximum of 5% of the
issued ordinary share capital and will be used by Huge to unlock long-term value
for shareholders.
Telecommunication Activities
Huge Telecom remains committed to its strategy of providing a complete spectrum
of managed telecommunication services to South African businesses. During the
period under review, it continued to improve its positioning to benefit directly
from the increased demand for managed services including Communications Expense
Management.
Huge Telecom continues to monitor developments in the telecommunications
industry to ensure that its business model is appropriate, optimal and
sustainable.
Huge Telecom, a significant wholesale client of the MNOs, supplies mobile voice
services to 5,287 clients across South Africa, totalling some 350 million
outbound mobile airtime minutes per annum. Because of this significant client
base Huge Telecom has the bargaining power to negotiate favourable terms of
trade.
Huge Telecom will continue focusing on introducing alternative revenue streams
that complement its business. It will also pursue opportunities to increase its
client base to enhance capacity utilisation and further improve gross and
operating profit margins.
Media Activities
Having established the commercial viability of its product set in South Africa,
Eyeballs is exploring partnerships to deploy its offering in the international
market.
It is the view of the board of directors of Eyeballs that the technology
represents an international rather than local opportunity - notwithstanding its
success to date in the South African market.
The "Goodyz" white-label belongs to one of Eyeball`s local distributors. Goodyz
has acquired more than 130 800 unique installed users since its commercial
launch in late January 2010. To date Goodyz has served just under 97 million
user impressions, of which 55.5 million were available to be sold for
advertising. At an expected retail rate, based on similar retail rates of other
types of media, of 15 cents per advertising impression the revenue generating
capability of Goodyz is substantial.
GENERAL REPURCHASE OF SHARES FOR CASH
From 1 March 2011 to 31 August 2011 financial year Huge repurchased 601 000
shares. The cost of the shares acquired was R464 730 and the average price was
77.3 cents per share.
LEGAL AND REGULATORY REQUIREMENTS
Shareholders are referred to paragraph 23 to the directors` report to the
condensed audited results of Huge for the year ended 28 February 2011, which
results were released on SENS on 28 June 2011. This paragraph documents matters
relating to the Company`s acquisition of single Stock Futures on 16 October 2008
and related interaction with the JSE. No events subsequent to the date of these
results have taken place which would impact the facts recorded therein.
LITIGATION
Shareholders are referred to paragraph 22 to the directors` report to the
condensed audited results of Huge for the year ended 28 February 2011, which
results were released on SENS on 28 June 2011. This paragraph documents the
dispute between Huge Telecom and CentraCell, and MTN Service Provider (Pty)
Limited. No events subsequent to the date of these results have taken place
which would impact the facts recorded therein.
SUBSEQUENT EVENTS
On or about 22 September 2011, Huge Telecom disposed of Section 1 and Section 5
of Erf 534, Doncaster Office Park, for the sum of R3 100 000.
The value of Land and buildings relating to Doncaster Office Park recorded in
the books and records of Huge Telecom amounted to R4 900 000 with a concomitant
non-distributable reserve of R2 351 514 relating to the revaluation of the
property.
On or about 10 October 2011 Huge Telecom entered into a cancellation agreement
with Managed Voice Solutions (Pty) Limited ("MVS"), a 33.33% held associate
company. The cancellation agreement contemplated the cancellation of the
Business Partner Agreement between Huge Telecom and MVS entered into on or about
18 January 2010 ("the Business Partner Agreement"). In return for the early
termination of the Business Partner Agreement Huge Telecom agreed to a
settlement payment of R2 700 000. R900 000 of the settlement payment was
returned to Huge Telecom as a repayment of a shareholder`s loan account in terms
of the shareholders` addendum agreement signed on or about 18 January 2011.
Other than the matters recorded above, no events material to the understanding
of this report have occurred in the period between the period-end date and the
date of this report.
CHANGES TO THE BOARD OF DIRECTORS AND COMPANY SECRETARY
With effect from 31 May 2011, Miss Yvette Neveling resigned from the board of
directors.
With effect from 3 August 2011, Mr Neil Brian Wensley was appointed to the
office of Financial Director of the Company.
DIVIDENDS
No dividends will be declared.
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 III Report on Corporate Governance.
Designated Advisor:
Arcay Moela Sponsors (Proprietary) Limited
Number 3, Anerley Road, Parktown, 2193
Auditors:
KPMG Inc.
KPMG Crescent
85 Empire Road, Parktown, 2193
Registered office:
First Floor, East Wing, 3M Building, 146a Kelvin Drive, Woodmead, Johannesburg,
2191 (PO Box 16376, Dowerglen, 1610)
Business address:
First Floor, East Wing, 3M Building, 146a Kelvin Drive, Woodmead, Johannesburg,
2191
Transfer secretaries:
Computershare Investor Services (Proprietary) Limited, Ground Floor, 70 Marshall
Street, Johannesburg
Directors:
SP Tredoux (Non-executive Chairman), KD Jarvis* (Lead Independent Director), BA
McQueen*, MR Beamish*, AD Potgieter*, JC Herbst (CEO), VM Mokholo, NB Wensley
(Financial Director)
*Non-executive
30 November 2011
Date: 01/12/2011 07:10:29 Produced by the JSE SENS Department.
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