| Thu 31 May 2012, 17:50 | | HUG - Huge Group Limited - Reviewed condensed consolidated annual financial |
|
HUG
HUG
HUG - Huge Group Limited - Reviewed condensed consolidated annual financial
results of Huge for the year ended 29 February 2012
HUGE GROUP LIMITED
(Registration number 2006/023587/06)
Share code: HUG ISIN: ZAE000102042
("Huge" or "the Group" or "the Company")
REVIEWED CONDENSED CONSOLIDATED ANNUAL FINANCIAL RESULTS OF HUGE FOR THE YEAR
ENDED 29 FEBRUARY 2012
HIGHLIGHTS FOR THE FINANCIAL YEAR
- Completion of business restructuring
- Adoption of lower operational cost business model
- Significant turnaround in operational performance
- Substantial improvements in supplier terms
- Securing of material future input cost reductions
- Confirmation of sustainability of technology model used in revised
business model
- Introduction of important distribution channels
- Disposal of 49% stake in TelePassport Communications (Pty) Limited
- Basic loss per share reduced from 15.33 to 4.05 cents
- Headline loss per share reduced from 15.33 to 5.04 cents
- Cash generated from operations of R22 million
The board of directors ("the Board") of Huge is pleased to present the
reviewed condensed consolidated annual financial results of the Company and
all its subsidiary companies, associate companies, and joint ventures ("the
Group") for the year ended 29 February 2012.
REVIEWED CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Reviewed Unaudited Audited
29 February 31 August 28 February
2012 2011 2011
(12 months) (6 months) (12 months)
R R R
Total revenue 388 854 143 212 337 255 523 771 553
Gross profit 74 671 335 46 375 763 89 667 748
Other income 2 140 083 381 210 1 200 715
Operating expenses (79 054 428) (38 190 124) (114 763 516)
Operating profit/ (2 243 010) 8 566 849 (23 895 053)
(loss) from
operations
Investment income 833 047 1 585 937 3 733 896
Net change in fair (2 662 602) (6 350 925) 5 126 817
value of financial
instruments
Net change in fair - 1 896 354 -
value of investment
in associate company
- TelePassport
Communications (Pty)
Ltd, a 49% held
associate company of
Huge Telecom, a
wholly owned
subsidiary company of
the Company - held-
for-sale
Share of earnings 61 733 1 298 457 (952 298)
/(losses) from equity
accounted investments
Finance costs (1 882 063) (775 426) (2 999 875)
Profit/(loss) before (5 892 895) 6 221 246 (18 986 513)
taxation
Income tax credit / 2 213 068 (3 570 057) 2 111 745
(expense)
Net profit/(loss) for (3 679 827) 2 651 189 (16 874 768)
the period
Non-controlling 151 309 (28 881) (1 897 956)
interest
Net profit/(loss) (3 831 136) 2 680 070 (14 976 812)
attributable to
owners of the company
Earnings before 2 520 041 11 829 115 102 909
interest, taxation,
depreciation and
amortisation
Basic (loss) / (4.05) 2.80 (15.33)
earnings per share
(cents)
Headline (loss) (5.04) 1.09 (15.31)
earnings per share
(cents)
Diluted (loss) (4.05) 2.80 (15.33)
earnings per share
(cents)
Diluted headline (5.04) 1.09 (15.31)
(loss) / earnings per
share (cents)
Dividends - - -
Total number of 90 242 95 901 95 901
shares in issue
(`000)
Weighted number of 94 586 95 901 97 671
shares in issue
(`000)
(Loss) /Earnings (3 831 136) 2 680 070 (14 976 812)
attributable to
ordinary shareholders
Adjusted for:
Loss/(Profit) on 1 901 793 (1 896 354) (104 556)
disposal of property,
plant and equipment
Tax effect (532 502) 265 490
Impairment of - - 97 774
goodwill on
acquisition of
Ambient Mobile (Pty)
Limited
Tax effect - - 29 276
Profit on disposal of (2 685 372) - -
associate company
Tax effect 375 952 - -
Headline (loss)/ (4 771 265) 1 049 206 (14 954 318)
earnings
Note: the 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.
REVIEWED CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Reviewed Unaudited Audited
29 February 31 August 28 February
2012 2011 2011
(12 months) (6 months) (12 months)
R R R
ASSETS
Property, plant and 33 025 064 37 325 921 38 901 191
equipment
Goodwill 215 153 478 215 153 482 215 153 482
Intangible assets 15 392 172 16 639 409 17 716 060
Investments in joint 562 230 552 369 387 558
venture
Investment in (736 461) - 1 811 107
associates
Investments 263 159 305 585 305 585
Loans to associate - - -
companies
Deferred tax 12 258 684 6 990 144 10 511 201
CURRENT ASSETS
Inventories 9 151 439 49 742 467 43 749 852
Trade and other 81 281 923 67 589 512 78 041 833
receivables
Loans to associate - 1 850 942 1 779 083
companies
Current tax 164 404 1 429 577 1 429 577
receivable
Cash and cash 24 649 239 5 386 556 11 933 887
equivalents
Investment in - 4 900 000 -
associate - held for
sale
Total assets 391 165 331 407 865 964 421 720 416
EQUITY AND
LIABILITIES
Share capital 9 024 9 590 9 590
Share premium 214 395 559 221 108 366 221 108 366
Reserves (1 074 561) 28 888 28 888
Retained earnings 10 498 952 17 010 159 14 330 089
Equity attributable 223 828 974 238 157 003 235 476 933
to equity holders of
parent
Non-controlling (1 121 496) (1 301 686) (1 272 805)
interest
Non-current
liabilities
Finance lease - 101 751 439 094
obligations
Deferred tax 1 798 081 2 385 861 2 385 861
Current liabilities
Loans to/(from) 1 464 324 1 191 937 1 212 057
associate companies
Loans from 1 886 082 601 103 654 951
shareholders
Other financial - 1 341 979 1 630 832
liabilities
Finance lease 739 571 499 604 3 674 139
obligations
Trade and other 145 172 003 140 279 143 155 221 410
payables
Shareholders for - 14 952 14 952
dividends
Bank overdraft 17 361 308 24 267 196 21 955 871
Current tax payable 36 484 327 121 327 121
Total equity and 391 165 331 407 865 964 421 720 416
liabilities
Number of shares in 90 242 95 901 95 901
issue (`000)
Net asset value per 246.79 248.34 245.54
share (cents)
Net tangible asset (0.87) 6.64 2.72
value per share
(cents)
REVIEWED CONDENSED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
Reviewed Unaudited Audited
29 February 31 August 28 February
2012 2011 2011
(12 months) (6 months) (12 months)
R R R
Net (loss) / profit (3 831 136) 2 680 070 (14 976 812)
for the period
attributable to
owners of the company
Other comprehensive
income
Other comprehensive (71 250) - (484 396)
income for the period
net of taxation
attributable to the
sale of land and
buildings by Huge
Telecom (Pty) Ltd
Total comprehensive (3 902 386) 2 680 070 (15 461 208)
income/(loss) for the
period attributable
to owners of the
company
REVIEWED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Reviewed Unaudited Audited
29 February 31 August 28 February
2012 2011 2011
(12 months) (6 months) (12 months)
R R R
Balance at 1 March 234 204 128 234 204 128 257 683 078
Total comprehensive (3 902 386) 2 680 070 (15 461 208)
(loss) / income for
the period
Purchase of own (6 713 373) - (5 321 685)
shares
Share option reserve - - (701 754)
Lapsing of Eyeballs (659 392) - -
call option
Transfer of call 350 877 - -
option premium to
share premium on
exercise of call
options
Acquisition of call (723 684) - -
options
Non-controlling 151 309 (28 881) (1 897 956)
interest
Acquisition of - - (96 347)
subsidiaries
Balance at 28/29 222 707 479 236 855 317 234 204 128
February/31 August
REVIEWED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Reviewed Unaudited Audited
29 February 31 August 28 February
2012 2011 2011
(12 months) (6 months) (12 months)
R R R
Cash flows from 22 010 910 (2 912 275) 7 463 545
operating activities
Cash flows from 6 860 303 (2 091 802) (8 345 175)
investing activities
Cash flows from (11 561 297) (3 854 579) (20 575 794)
financing activities
Net cash movement for 17 309 916 (8 858 656) (21 457 424)
the period
Cash at the beginning (10 021 984) (10 021 984) 11 430 271
of the period
Cash and cash - - 5 169
equivalents acquired
Total cash at the end 7 287 932 (18 880 640) (10 021 984)
of the period
SEGMENTAL REPORTING
The directors have considered the implications of IFRS 8 Operating segments
and are of the opinion, based on the information provided to the chief
operating decision maker, that the current operations of the Group can be
split into two main operating segments, namely a Telecom Grouping (including
Huge Telecom (Pty) Ltd ("Huge Telecom") and Centracell (Pty) Ltd
("CentraCell")) and a Media, Technology and Software (MTS) Grouping (including
Eyeballs Mobile Advertising (Pty) Ltd ("Eyeballs") and Huge Media (Pty) Ltd
("Huge Media")). The operations within each of these main segments, or
groupings, are substantially similar to one another and the risk and returns
of the operations of these segments/groupings are likewise similar. Resource
allocation and management of the current operations are performed on an
aggregate basis within each of the two main segments/groupings. Eyeballs and
Huge Media are still in the start-up phase of their respective business life
cycles. No revenue was generated by either company. The summarised
information is included below in line with the requirements of IAS 34. The
revenue, generated from the products and services supplied by the respective
Group companies, is distributed countrywide to all clients with no
geographical differentiation.
Telecom MTS Corporate Total
Grouping Grouping Office
R R R R
Total revenue 388 514 962 339 181 - 388 854 143
Cost of sales (314 127 930) (54 878) - (314 182 808)
Gross profit 74 387 032 284 303 - 74 671 335
Other income 1 911 362 73 835 154 886 2 140 083
Operating (72 336 651) (1 311 390) (5 406 388) (79 054 429)
expenses
Operating 3 961 743 (953 252) (5 251 502) (2 243 011)
profit/(loss)
Investment 402 135 - 430 912 833 047
income
Net change in (950 493) - (1 712 110) (2 662 603)
fair value of
financial
instruments
Income/(loss) 61 733 - - 61 733
from equity
accounted
investments
Finance costs (1 619 278) (223 821) (38 964) (1 882 063)
Profit/(loss) 1 855 840 (1 177 073) (6 571 664) (5 892 897)
before income
tax
Income tax 3 044 450 - (831 382) 2 213 068
credit/(expens
e)
Profit after 4 900 290 (1 177 073) (7 403 046) (3 679 829)
income tax
COMMENTARY
ACCOUNTING POLICIES
The reviewed condensed consolidated annual financial results have been
prepared in accordance with the recognition and measurement principles of
International Financial Reporting Standards and presented in accordance with
the minimum content, including disclosures, prescribed by IAS 34 Interim
Financial Reporting applied to year end reporting, and South African
Statements and Interpretations of Statements of Generally Accepted Accounting
Practice (AC500 Series), the Companies Act of South Africa, and the JSE
Limited`s Listings Requirements. The accounting policies used in preparation
of these reviewed condensed consolidated annual financial results are
consistent with those applied in the last annual financial statements of the
Company published in the prior year.
COMPANY PROFILE
Huge is an investment holding company listed on the Alternative Exchange
(Altx) of the JSE Limited`s Stock Exchange ("the 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 financial instruments.
Huge Telecom and CentraCell, wholly owned subsidiaries of Huge and the
principal trading operations of the Group, are two of South Africa`s leading
managed telecommunications companies.
Eyeballs (77% owned by Huge) is a technology provider whose technology
consists of a software application that recipient users download and install,
at no cost, on their mobile phones. It displays advertising and content images
on the phone screen when calls are made or messages are received.
Eyeballs intends generating revenue from the successful deployment of the
server-end of its technology on the servers of various customers, particularly
mobile network operators operating throughout the world.
FINANCIAL OVERVIEW
GROUP FINANCIAL PERFORMANCE
During the year under review, the Company focused on completing the
restructuring of its business operations, which resulted in further reductions
in costs. This had the effect of turning around the operational performance
of the Company for the 2012 financial year.
The focus of the Management and Board for the coming financial year will be
achieving substantial improvements in the terms enjoyed from its wholesale
suppliers, including further reductions in input prices, as well as growing
and strengthening its distribution channels.
INVESTMENT HOLDING ACTIVITIES
The Company continues to repurchase its own shares in accordance with the
mandate of its shareholders.
The dates of the acquisitions of the shares are set out below:
Date of Acquiror Number of Purchase Value of
purchase shares price per shares
share purchased
26-Aug-11 Huge Group 401 000 75.00 300 750.00
30-Aug-11 Huge Group 200 000 81.99 163 980.00
12-Dec-11 Huge Group 934 400 51.37 480 000.00
12-Dec-11 Huge Group 37.55 350 877.20
- Option
Premium
12-Dec-11 Huge 3 500 000 140.00 4 900 000.00
Telecom
12-Dec-11 Huge (3 500 000) (140.00) (4 900 000.00)
Telecom
12-Dec-11 Huge Group 3 500 000 140.00 4 900 000.00
12-Dec-11 Huge Group 11 100 55.00 6 105.00
20-Dec-11 Huge Group 60 321 69.00 41 621.49
20-Dec-11 Huge Group 101 200 70.00 70 840.00
20-Dec-11 Huge Group 2 000 71.00 1 420.00
12-Jan-12 Huge Group 2 020 66.00 1 333.20
08-Feb-12 Huge Group 90 000 81.00 72 900.00
08-Feb-12 Huge Group 10 000 80.00 8 000.00
13-Feb-12 Huge Group 124 863 83.00 103 636.29
14-Feb-12 Huge Group 30 000 84.00 25 200.00
16-Feb-12 Huge Group 33 460 95.00 31 787.00
17-Feb-12 Huge Group 118 333 100.00 118 333.00
22-Feb-12 Huge Group 40 655 90.00 36 589.50
Total 5 659 352 6 713 372.68
118.62
TELECOMMUNICATIONS ACTIVITIES
The telecommunications industry in South Africa continues to be both a dynamic
and challenging arena, characterized by on-going regulatory changes, together
with innovative product development, which has caused the natural attrition of
the number of competitors within the industry over the past three years.
The Board has considered the value of goodwill recognized by Huge on the
original acquisition of Huge Telecom and CentraCell ("the Goodwill") and has
concluded that no impairment to the Goodwill is considered necessary given the
following factors:
- Huge Telecom and CentraCell ("HugeTel") were originally formed to take
advantage of a price arbitrage between the cost to an ordinary customer of
making a telephone call to a mobile destination using the services of Telkom
Ltd ("Telkom") and the cost of making the same telephone call using the
services of mobile network operators ("MNOs") in the retail telephony services
market. This price arbitrage was initially a 40% price advantage and was
passed on by the likes of HugeTel to its clients on the date on which the
client commenced utilising HugeTel`s telephony services;
- In order to deliver its telephony services to its clients, HugeTel
adopted a commercial business model called least cost routing ("LCR"). LCR
involved the subscription by HugeTel, as an ordinary retail customer, for
retail mobile packages from the respective MNOs;
- Due to its bulk buying power HugeTel was able to secure bulk discounts
and other incentives (in the form of connection incentive bonuses ("CIBs") and
marketing incentives) from the MNOs in respect of the retail subscription
based mobile packages purchased from the MNOs and sold to its clients;
- It was these discounts and incentives that generated the gross profit,
net profit and cash flows of HugeTel and ultimately supported the valuation of
the Goodwill;
- In July 2010 the major MNOs ceased paying CIBs; Management considered
this a potential indicator of the impairment of the Goodwill ("the CIB
Impairment Indicator");
- As early as April 2008 the management of HugeTel ("Management") and the
Board started giving due consideration to the medium and long-term
sustainability of the business model adopted by HugeTel in operating in its
chosen market; LCR was considered generally at the time to be unsustainable
given that it was a retail-price-less-discount business model ("the Retail
Risk") and catered for only part of the total needs of HugeTel`s client base
("the Service Risk");
- Because LCR was borne out of a retail arbitrage relating to mobile
terminated telephone calls (in other words outbound mobile telephone calls)
only, it inherently exhibited the Service Risk - given that only one sixth (or
at best one quarter) of the telephony services used by the clients of HugeTel
were being provided by it; the other five sixths (or at best the other three
quarters) of the telephony services, which include outbound international,
national and local telephone calls, and inbound international, mobile,
national and local telephone calls, were being provided by Telkom ("the
Foregone Destinations");
- At the time, Management and the Board also considered the medium and long-
term sustainability of the technology model of fixed cellular routing ("FCR")
used by the LCR business model to deliver the `last-mile` of the telephony
services HugeTel was providing and compared the sustainability and economic
viability of this last-mile technology solution against other technology
solutions, such as Voice over Internet Protocol ("VoIP"), over Telkom`s legacy
fixed-line infrastructure, touted by many industry commentators as a solution
for use in providing the last-mile for all telephony services;
- After due consideration Management and the Board concluded that the cost-
benefit ratio of using FCR technology to deliver the last-mile for telephony
services far outweighed the cost-benefit ratio of switching to VoIP
technology, using Telkom`s legacy fixed-line infrastructure, to deliver the
last-mile for telephony services;
- From as early as 2008, Management and the Board saw the benefits of
embarking on a strategy of eliminating the Retail Risk by securing a wholesale
agreement that would see it acquire wholesale last-mile services from one or
more of the MNOs for use in providing telephony services to the clients of
HugeTel; In February 2011 Management concluded such an agreement ("the
Wholesale Advantage");
- In obtaining the Wholesale Advantage HugeTel is able to offer a full
suite of telephony services, including the Foregone Destinations;
- Management and the Board estimate that the Foregone Destinations are
equal to, at worst, three times the existing services provided by HugeTel
(measured in minutes), and at best, equal to five time the existing services
provided by HugeTel (measured in minutes) ("the Service Multiplier");
- As a result of the regulatory changes to termination rates the wholesale
input costs of Telkom, taken into account when pricing telephony services to
mobile destinations, started decreasing, allowing Telkom to reduce its mobile
telephony prices to the market;
- Between August and November 2011, Telkom aggressively targeted the upper
segment of the telephony services market - defined by HugeTel as customers
spending more than R100 000 per month on telephony services by substantially
reducing prices for telephony services to mobile destinations;
- Management and the Board considered strategies to combat the loss of
revenue from clients in the upper segment of the market ("Upper Segment
Churn") moving to Telkom, including matching prices for Telkom`s telephony
services to mobile destinations, and concluded that the retention of the upper
segment at ever reducing profit margins and at any cost was futile;
- Management and the Board considered the impact of Upper Segment Churn on
revenue ("the Revenue Impact") for the 2012 financial year and concluded that
the Revenue Impact, although short-term in nature, is still a potential
indicator of an impairment of the Goodwill ("the Churn Impairment Indicator");
- Management and the Board considered the CIB Impairment Indicator and the
Churn Impairment Indicator ("Indicators") and conclude that the Service
Multiplier more than mitigates the impact of the Indicators.
The Board continues to assess the industry and the possible changes that could
impact the Goodwill.
During the course of the year, TelePassport Namibia, in which the Huge Telecom
held a 49% stake, was sold for R4 900 000 to Luigi`s Trust, an associate of
Anton Potgieter, a non-executive director of the Company. TelePassport is
based in Windhoek, Namibia and was formed in 2004 by Huge Telecom and certain
local high profile residents of Namibia, with a view to growing Huge Telecom`s
market share outside the borders of South Africa.
Namibia is a small market for the provision of managed telecommunications
services and is roughly equal in size to half of Huge Telecom`s KwaZulu Natal
office. Namibia is also a different regulatory market as far as
telecommunications services are concerned, making the management thereof
different to the Group`s South African operation.
Shareholder approval for the disposal was obtained on 9 December 2011. The
purchase price for TelePassport Namibia was satisfied through the tendering of
3 500 000 ordinary shares in the issued share capital of the Company, and thus
the disposal of Huge Telecom`s holding in TelePassport afforded the Company
the opportunity to continue to repurchase its shares under favourable
conditions.
MEDIA ACTIVITIES
Huge has a 77% shareholding in Eyeballs. Eyeballs has continued to refine its
proprietary in-application mobile phone advertising technology during the
financial year in support of its technology provider strategy.
The Board has considered the value of the intangible asset of approximately
R16.05 million raised on the step acquisition by the Company of an additional
52% of the ordinary share capital of Eyeballs wherein the Company`s ownership
of Eyeballs increased to a shareholding of 77%. The value of the intangible
asset is based on the technology owned by Eyeballs and is further based on its
value-in-use or its fair-value-less-costs-to-sell, as required by
International Financial Reporting Standards (IFRS). The intangible assets is
amortised over a useful life of five years. The technology is disclosed at a
carrying value of R6.4 million.
GROUP OPERATING ACTIVITIES
The performance of the Group can be summarised as follows:
Revenue for the full financial year to date ("YTD") is down R134.9 million or
25.76% from R523.8 million to R388.9 million when compared to the prior year;
YTD gross profit ("GP") is down R15.0 million or 16.72% from R89.7 million to
R74.7 million;
YTD GP, excluding the increasing effects of CIBs and marketing incentives of
R20.9 million in the 2011 financial year ("FY") but including the decreasing
effects of Business Partner commissions paid of R24.5 million in FY2011) is up
R6.5 million or 6.97% from R93.3 million (R89.7 million less R20.9 million
plus R24.5 million) to R86.8 million (R74.7 million less R4.8 million plus
R16.9 million); the aforementioned change in GP is a like for like comparison
as it ignores the effects of CIBs;
YTD operating costs are down R35.7 million or 31.12% from R114.8 million to
R79.0 million.
GROUP NET CHANGE IN THE FAIR-VALUE OF FINANCIAL INSTRUMENTS
The net change in the fair-value of financial instruments, in particular the
mark-to-market profits on the single stock futures contracts and contracts for
difference held by the Group, amounted to a loss of R2.66 million.
STATEMENT OF FINANCIAL POSITION CONSIDERATIONS
Cash generated from operations during the current financial year amounted to
R22.0 million.
Capital expenditure during the current financial year amounted to R3.7
million. The Group no longer has any long-term debt.
FUTURE PROSPECTS
Investment Holding Activities
The Group will continue where possible to purchase shares that trade at a
discount to its fair-value under its general authority to repurchase. This
general authority is limited to a maximum of 5% of the issued ordinary share
capital at present and will be utilised by Huge in order to unlock long-term
value for shareholders.
Telecommunication Activities
The Board and Management expect the market for telecommunications products and
services to experience significant wholesale price compression in the
immediate future. This outlook is good for HugeTel given that wholesale price
compression equates to lower input prices and correspondingly higher profit
margins. The most significant moves are expected from the MNOs, particular
Cell C, but no doubt MTN and Vodacom will have to follow suit if they want to
prevent Cell C from gaining an early lead in providing corporate telephony in
South Africa.
Wholesale price reductions by the MNOs will add further credibility to the
provision of telephony services using FCR and the concomitant use of the
wireless GSM last-mile to deliver these telephony services. This will improve
the position of HugeTel relative to that of its VoIP competitors, who piggy-
back on Telkom`s existing legacy fixed-line infrastructure to provide the last-
mile for their telephony services.
Management and the Board believe that HugeTel is in a relatively stronger
position with the MNOs in the event of significant wholesale price competition
because, unlike the VOIP proponents, HugeTel has chosen not to build its own
network to compete with the incumbent telecom operators. Indeed, the MNOs may
well see the likes of Vox, Nashua, Internet Solutions, and Autopage as
competitors at the operator level, whereas HugeTel is far better positioned to
partner meaningfully with the MNOs because of its pure service provider,
rather than aspirant network operator, status.
Management believes further that it is also going to be difficult for the
current VoIP proponents in the market to undo their recent unilateral
conversions of their clients from LCR to VoIP, given the capital investments
that they have now made in their VoIP networks, the long-term infrastructure
contracts for the supply of data services to which their clients have bound
themselves, and the competitive threat which they potentially pose to the
MNOs.
If a wholesale price war in the corporate telephony voice market emerges, it
is the Board and Management`s view that at present HugeTel is one of the best
placed providers of corporate telephony solutions to benefit from this.
HugeTel may also possibly be the only real service provider left in this
space, due to the mass exodus to VoIP - especially by the larger players - and
the failure of most of the smaller players due to financial pressures
associated with the margin squeeze experienced over the past three years.
HugeTel has on numerous occasions been questioned about the real-world
benefits of FCR. It is the view of Management that FCR benefits far outweigh
the benefits of VoIP. It is far simpler to install an FCR solution than a
fixed-line or VoIP solution, as the lead time to architect the solution is
shorter, the lead times to implement are quicker, it can be provided
incrementally (in units as small as one voice channel), there is natural
redundancy and fail-over built into the architecture of the MNOs GSM-networks
and the mean times to repair are phenomenally better. Besides the complexity
of installing a VoIP system and the costs to manage and maintain it, fixed-
line telephony comes with a host of other challenges and pitfalls:
Cable theft is rife and affected areas often take weeks or months to have
their services restored, if at all in some cases;
Lead time to install or move services takes weeks or even months; and
Trying to move a fixed-line is very difficult.
The Board and Management believe that HugeTel is well prepared to take
advantage of the position it holds given that its extensive, proprietary
systems and business model are all geared towards efficiently routing
corporate voice across fixed cellular channels. The company has automatically
generated alerts on channel usage, together with a billing engine capable of
rating, checking and double-checking calls from all networks, advanced
reporting options, a national presence across South Africa with a wide network
of Business Partners, and a technology solution which is proven. Furthermore,
unlike VoIP, the services scale and work equally well across the entire
market, from a residential customer to an SME or start-up with two telephone
lines to a corporate with two hundred or more telephone lines.
Media Activities
Eyeballs will continue to explore partnerships to deploy its offerings in the
international market. This start-up business continues to be well placed to
achieve breakeven profitability in the near future. The mobile advertising
market continues to enjoy enormous growth projections from leading experts
worldwide.
GENERAL REPURCHASE OF SHARES FOR CASH
From 1 March 2011 to the end of the 2012 financial year Huge repurchased 5 659
352 ordinary shares in accordance with Section 85 of the erstwhile Companies
Act, 1973, and Section 46 and 48 of the Companies Act, 2008, promulgated on 1
May 2011. The cost of the shares acquired was R6 713 372.68 at an average
price of 118.62 cents per share. The Group currently holds 10 270 878
ordinary shares as treasury shares, of which 623 952 ordinary shares are held
by the Company and will be cancelled, while 9 646 926 ordinary shares are held
by Huge Telecom.
The Company currently has 100 512 495 ordinary shares in issue of which 10 270
878 ordinary shares have been repurchased, leaving a net 90 241 617 listed
ordinary shares.
The Company is also the holder of single stock futures contracts over 8 045
500 ordinary shares, while Huge Telecom is the holder of single stock futures
contracts over 359 200 ordinary shares and contracts for difference over 3 904
579 ordinary shares. These financial derivative instruments are all fully
collateralized with cash and present the Company with the potential to
repurchase the shares underlying them for no cash consideration. Should the
Company elect to repurchase the underlying shares, which it has not as yet
decided to do, the net number of ordinary shares in issue will fall to 77 932
338 ordinary shares.
LEGAL AND REGULATORY REQUIREMENTS
Huge Telecom is currently party to the following litigation:
MTN Service Provider Proprietary Limited ("MTN SP")
MTN SP instituted a notice of motion in the South Gauteng High Court,
Johannesburg, on 18 January 2011 whereby it made application for either an
order 1) liquidating Huge Telecom Proprietary Limited; 2) that the costs of
the application be costs in the liquidation; 3) further and/or alternative
relief, or alternatively a judgment against Huge Telecom Proprietary Limited
for 1) payment of the amount of R30 million; 2) interest; 3) costs of the
suit; 4) further or alternative relief.
Huge Telecom opposed the notice of motion and filed its answering affidavit on
1 March 2011.
MTN SP`s filed its replying affidavit on 1 July 2011.
The application proceedings have been enrolled for hearing on 23 and 24 July
2012.
The Group has recognised the assets and the liabilities relating to the MTN SP
dispute in accordance with the settlement agreement which MTN SP claims was
reached between the parties. As such the carrying amounts of these assets and
liabilities may be materially adjusted within the next financial year,
depending on the outcome of the legal dispute.
Mr JP Kimber
On 22 November 2010, Jonathan Peter Kimber ("Kimber"), a past director of Huge
Telecom, instituted a claim against Huge Telecom for payment of R6.8 million
in terms of an option agreement signed by Huge Telecom and Kimber on 2
September 2008, as varied by the option agreement amendment agreement signed
by Huge Telecom and Kimber on 27 February 2009 ("the option agreements").
On 12 October 2011 Kimber launched an application in the South Gauteng High
Court for rectification of the option agreements and for payment of the sum of
R6.8 million plus interest thereon ("the main application").
Huge Telecom opposed the notice of motion in terms of the main application and
filed its answering affidavit on 19 October 2011.
On 14 November 2011 Huge Telecom launched its own notice of motion in terms of
a separate Section 6(1) application in the South Gauteng High Court seeking an
order compelling Kimber to comply with the arbitration undertakings in the
option agreements, which prevent Kimber from litigating in court.
On 22 November 2011 Kimber filed a notice of intention to oppose the Section
6(1) application, and subsequently on 7 December 2011, Kimber filed an
opposing affidavit to the Section 6(1) application.
In reply, on 12 January 2012 Huge Telecom filed its replying affidavit to the
Section 6(1) application to stay the main application.
The section 6(1) application was set down for hearing on 28 March 2012 and was
heard by Acting Judge Vermeulen, who has reserved judgment in the matter, with
no indication of when judgment may be delivered.
No amounts have been recognized in the financial results given that the
dispute involves the possible repurchase by the Company of its own shares.
SUBSEQUENT EVENTS
There are no events subsequent to 29 February 2012 and to the date of this
announcement which have had or may have a material impact on the Company.
GOING CONCERN
The Board has made a detailed assessment of the going concern capability of
the company and all subsidiaries of the company that form the Group with
reference to certain assumptions and plans underlying various cash flow
forecasts made by Management.
The Board has not identified any events or conditions that individually or
collectively cast significant doubt on the ability of the Company and the
Group to continue as a going concern.
CHANGES TO THE BOARD OF DIRECTORS AND COMPANY SECRETARY
Ms Yvette Neverling resigned as the Acting Financial Director with effect from
31 May 2011, whereafter Mr James Charles Herbst fulfilled the role of Acting
Financial Director.
Subsequent to this, Mr Neil Brian Wensley was appointed as Group Financial
Director with effect from 1 August 2011, which appointment was ratified by
shareholders at the Annual General Meeting of the Company held on 28 October
2011.
CHANGES TO THE AUDITOR
BDO South Africa Incorporated was appointed to the office of auditor of the
Company with effect from 2 December 2011 in the stead of KPMG Incorporated.
DIVIDENDS
No dividends were paid or declared during the financial year ended 29 February
2012.
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.
UNMODIFIED REVIEW CONCLUSION
The reviewed condensed consolidated annual financial results of Huge for the
year ended 29 February 2012 have been reviewed by the Company`s auditor, BDO
South Africa Incorporated. Their unmodified review report dated 31 May 2012
is available for inspection at the Company`s registered office.
Johannesburg
31 May 2012
Designated Advisor
Arcay Moela Sponsors Proprietary Limited
Number 3, Anerley Road, Parktown, 2193
Auditors
BDO South Africa Incorporated.
13 Wellington Road, Parktown, 2193
Registered office:
146a Kelvin Drive, Woodmead, Johannesburg, 2191 (PO Box 16376, Dowerglen,
1610)
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*, AD Potgieter*, MR Beamish*, JC Herbst (CEO), NB Wensley (Group
Financial Director), VM Mokholo
*Non-executive
Date: 31/05/2012 17:50:52 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
