Upload
others
View
2
Download
0
Embed Size (px)
Citation preview
value.brand.
service.
Annual Report 2012
VISION
Table of contents
We will build a group that excels in the creation of client, employee and stake-holder value, led by a huge brand and service ethic.
2
3
4
5
7
8
12
13
13
22
23
114
Financial and operational highlights
Corporate Overview
Segmental Structure
Board of directors
Chairman’s Letter
CEO’s Report
Review of operations
Huge Telecom
CentraCell
Sustainability Report
Corporate Governance Report
Report of the Combined Audit and RiskCommittee
Group Annual Financial Statements
Notice of annual general meeting of theshareholders of the company
Attached – Form of proxy
Huge Group Limited Annual Report 20121
Financial and operational highlights
• Basic loss per share of 4,82 cents
• Headline loss per share of 5.88 cents
» Completion of business restructuring
» Adoption of lower operational cost 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 Proprietary Limited
» Basic loss per share reduced from 15.33 cents to 4.82 cents
» Headline loss per share reduced from 15.31 cents to 5.88 cents
» Cash generated from operations of R14.7 million
Revenue (Rm)
Earnings before interest, taxation, depreciation and amortisation (Rm)
Loss before taxation (Rm)
Basic loss per share (cents)
Headline loss per share (cents)
Return on book value of equity (%)
Net asset value per share (cents)
388,9
3,3
(6,6)
(4,82)
(5,88)
(2,0)
246,79
2012
523,8
1,0
(19,0)
(15,33)
(15,31)
(7,2)
245,54
2011
(25,76)
230
52,73
52,32
43,55
57,83
0,51
% change
Huge Group Limited Annual Report 2012 2
Corporate Overview
Huge Group Limited (“Huge”) is an investment holding company listed on the Alternative Exchange (Altx) of the JSE Limited’s Stock Exchange (“the JSE”). The group of companies comprising Huge (“Group”) is focused on building value for all of its stakeholders. Its treasury operations are mandated to maximise the financial position of the Company in the debt and equity markets using both cash and derivative-based instruments.Huge Telecom Proprietary Limited (“Huge Telecom”) and CentraCell Proprietary Limited (“CentraCell”), wholly-owned subsidiary companies of Huge and the principal trading operations of the Group, are two of South Africa’s leading “Communication Expense Management” and “Managed Telecommunications” companies. Ambient Mobile Proprietary Limited (50,2% owned by Huge Telecom) (“Ambient”) provides SMS services and Le Gacy Telecom Proprietary Limited (50,3% owned by Huge Telecom) (“Legacy”) is trading as a “Managed Telecommunications” Company.
Eyeballs Mobile Advertising Proprietary Limited (“Eyeballs”) (77% owned by Huge) is a technology provider whose technology consists of a software application that allow recipient users to download and install, at no cost to themselves, on their mobile phones. It displays advertising and content images on the phone screen when calls are made or messages 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.
Huge Group Limited Annual Report 20123
Segmental Structure
Huge listed 8 August 2007Share code: HUG
Owns 100% Owns 100% Owns 77%Owns 100%
Huge Telecom
Owns 100%
Huge Cellular
CentraCell Huge Media Eyeballs Mobile Advertising
Owns 50.2%
Ambient Mobile
Owns 33.3%
Managed Voice Solutions
Owns 50.3%
Le Gacy Telecom
Owns 50%
Gonondo Telecom
Huge Group Limited Annual Report 2012 4
Board
Stephen (“Steve”) Peter Tredoux (52) - Non-executive ChairmanAppointed: 26 March 2008Steve started his working career as an accountant but moved to general management where he worked in the property management and manufacturing industries. He subsequently joined the information technology sector where he was employed by National Data Systems as account director addressing all commercial and support issues for Nedbank. In 1995 Steve joined MTN working there with the service providers, as well as investigating new routes to market, new product sets, and new ways of communicating with customers. When MTN acquired M-Tel, Steve was appointed in an executive sales and advertising capacity. He has considerable experience in sales distribution but is also a master of marketing and product development. Steve is a member of the Audit and Risk Committee and a member of the Combined Remuneration and Nomination Committee.
Anton Daniel Potgieter (43) - Non-executive director, BBusSc (Hons – Information systems)
Kenneth (“Ken”) Delroy Jarvis (55) - Lead independent non-executive directorAppointed: 1 September 2008 Resigned: 7 June 2012Ken previously held the position of CIO at the South African Revenue Service (“SARS”) and was responsible for the turnaround of SARS from 2002 to 2006. He started his working career in the mid-1970s and spent a decade with IBM. During his career he worked for a number of well-known companies, including Nedacom, Momentum Life, Nedcor Bank, Amplats, MultiChoice and SARS, and his experience includes massive project rollouts, con-solidation exercises and transformational initiatives. Ken currently runs his own consulting company focusing on executive mentoring and coaching, as well as IT strategy and project trouble shooting. He is also involved at a shareholder level in a number of start-up IT companies. Ken is a member of the Combined Audit and Risk Committee and Chairman of the Combined Remuneration and Nomination Committee.
Michael (“Mike”) Ronald Beamish (43) - Non-executive directorAppointed: 8 December 2009Mike began his career as a Derivatives Trader with HSBC Securities, holding various contract positions as an analyst, consultant and systems implementer. After two years, he took over the management of the firm’s proprietary trading book. He spent a further four years in this position and was promoted to Associate Director. In 2003, Mike started Praesidium Capital Management Proprietary Ltd (“Praesidium”), an asset management Company which has three managing partners. Praesidium is a shareholder of Huge and Mike is a material shareholder of Huge.
Appointed: 2 July 2007Anton has eighteen years of telecommunications experience in the Southern African market, with extensive experience in all facets of business within an industry which is ever-changing. He started an IT Company in 1991, and then founded TelePassport in 1993, which was focused initially on international call-back. In 1997, TelePassport extended its focus into GSM-based least cost routing. TelePassport’s annual revenue grew to R350 million by 2006. Anton listed TelePassport as Huge in 2007 and fulfilled the role of Chief Executive Officer before being appointed as its Executive Chairman in 2008. In April 2011, Anton resigned as an employee of Huge Telecom and was appointed as a non-executive director on the Group’s board.
Brian Alexander McQueen (68) - Independent non-executive directorAppointed: 24 July 2007 Resigned: 28 June 2012Brian McQueen has forty years of experience in sales and general management, gained primarily in the gas and telecommunications industries, and in particular with PABX telephony, radio paging and GSM cellular companies. Brian started his career as a management trainee at Afrox in 1964, and progressed through the ranks to national contracts manager by 1985. He then moved to Infotech in the role of software development manager until 1987, and fulfilled several roles at STC Business Communications (Alcatel) from 1987 to 1995. In 1995, he joined Autopage Paging, where he was ultimately appointed as managing director of Supercall, a subsidiary of Altech, in 2002. Brian is the Chairman of the Combined Audit and Risk Committee and a member of the Combined Remuneration and Nomination Committee.
Huge Group Limited Annual Report 20125
Vincent Mokhele Mokholo (39) - Executive director, BScAppointed: 2 July 2007Vincent has worked in the telecommunications industry for the last 17 years. After graduating in 1995, he joined GSM Cellular where he applied himself across the different business disciplines within the company, developing his professional skills and finishing his tenure as the corporate account manager. Vincent joined TelePassport in 1999 to focus on business growth. Vincent was instrumental in developing TelePassport into a successful and growing business. At the helm of a consortium he played a major role in tailoring a BBBEE transaction for TelePassport, which culminated in Mojaho Trading acquiring 30% of the company. He assumed the role of Client Services Director when TelePassport and CentraCell formed Huge Telecom, and was responsible for bedding down the operations and service deliverables of the combined entity. Vincent was appointed to the position of Product and Business Development Director in January 2009, and was involved in rejuvenating the Group’s product portfolio, with the continual introduction of new products. Huge Telecom acquired a controlling shareholding in Ambient Mobile in January 2011, which has resulted in Vincent’s appointment as the head of Ambient Mobile Proprietary Limited. Vincent was instrumental in the acquisition of Ambient, having identified the potential growth of mobile messaging not only in South Africa but in the rest of the African continent as well. He has also completed a mini MBA (Telecoms) with Informa Telecom academy, based in the United Kingdom.
Board
James Charles Herbst (41) - Chief Executive Officer, BComm, BAcc, CA(SA), Chartered Financial AnalystAppointed: 1 September 2006James is a CA with sound experience in corporate finance, corporate law, investment banking and investment management. After completing his articles with Coopers & Lybrand and the Chartered Financial Analyst programme, James worked for Fleming Martin Private Asset Management where he managed full discretionary funds. He left in 2001 to start a private equity business that later culminated in the listing of Level 4 IT Services with its subsequent acquisition of DataPro (now Vox Telecom). Having completed his service contract with DataPro, James went on to pursue corporate finance and deal-making with the launch of WRH Corporate Advisors. In July 2007, they acted as corporate advisors to TelePassport, which was reverse-listed into Huge. Since his appointment as CEO, James has been instrumental in integrating Huge’s two principal telecommunications businesses, which have been combined to form Huge Telecom.
Neil Wensley (49) - Group financial director, BCompt (Hons)Appointed: 1 August 2011Neil has a BCompt (Hons) degree and after completing accounting articles in Durban with David Strachan &Tayler, he worked in the financial field in textiles (with Mooi River Textiles) and for various listed and private manufacturing groups in the engineering industry (with the Haggie Group). Neil has a vast experience: as a financial manager, group internal auditor, corporate financial manager, financial director and financial executive. Neil also has private company board experience through his previous employer Maksal Tubes which acquired the operations of the Maksal division of a Haggie Group company in a 1998 management buy-out with Gold Circle Metals and Rand Merchant Ventures. Neil was appointed to the board of Maksal, and gained further experience as a result of his involvement in the buy-out of the Rand Merchant Ventures share of the company in a second management buy-out that took place in 2003. Neil brings with him a “hands-on” range of experience.
Yvette Neverling (32) - Acting Group Financial Director, CA (SA)Appointed: 8 December 2010 Resigned: 1 June 2011Yvette qualified as a Chartered Accountant (SA) in 2007. She was appointed as the financial manager at Huge Telecom Proprietary Limited in November 2009, prior to which she had been the financial accountant at Investec Private Bank.
Huge Group Limited Annual Report 2012 6
Chairman’s LetterThe past financial year remained a challenging one for the telecommunications industry as a whole. In spite of this, Huge continued in its efforts to improve operational performance whilst lowering operational costs, resulting in a marked improvement in both earnings and headline earnings per share.
The Company’s commitment to the technology model used in our revised business model was vindicated by the changes within the industry in which we operate, and shall provide Huge with a firm foundation on which to build in the coming years. The Company has been streamlined and restructured in order to support this model going forward, and the management team must be commended on their continued dedication to this task. In addition, Huge’s senior management continues to look for new opportunities to enable further unlocking of value for all of the Company’s stakeholders.
During the year under review, the Company remained committed to the principles of good corporate governance, with a balanced and experienced board of directors (“the board”) with strong, knowledgeable directors who provide independent and well considered advice on pertinent matters. The board has unlimited access to the resources required to assist it in decision making, thereby ensuring the on-going promotion of the interests of all stakeholders.
Once again, I extend my sincere thanks to my Board colleagues, senior management and staff of the Company who have guided Huge through a challenging year, as well as our customers, shareholders and all other stakeholders who play a part in continuing to build a Huge business.
Steve TredouxNon-executive chairman
The Company has been streamlined and restructured and the management team must be commended on their continued dedication to this task.
Huge Group Limited Annual Report 20127
CEO’s Report
During the year under review, the Company focused on completing the restructuring of its business operations with the result of a reduction 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.
Operational performanceInvestment holding activities
As from 1 March 2011 to the end of the 2012 financial year, Huge repurchased 5 659 352 ordinary shares in accordance with section 48 of the Companies Act 71 of 2008. The cost of the shares acquired was R6 713 373 at an average price of 118,62
cents per share. The Group currently holds 10 270 878 ordinary shares, of which 623 952 are held by Huge.
Telecommunication 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.
During the course of the year, TelePassport Communicat ions Propr ie tary L imi ted (“TelePassport”), a Namibian Company, in which 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
During the year under review, the Company focused on completing the restructuring of its business operations with the result of a reduction in costs. 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.
James HerbstChief Executive Officer
Huge Group Limited Annual Report 2012 8
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 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 own 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 asset is amortised over a useful life of five years, and the technology is currently carried at a 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 connection incentive bonuses (“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; and
• YTD operating costs are down R32.9 million or 28.6% from R114.8 million to R81.9 million.
Future prospectsInvestment 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. At the Annual General Meeting to be held on 28 September 2012, shareholders shall be asked to approve the general repurchase of shares representing up to a maximum of 20% of the issued share capital of the Company. The provisions of section 48 of the Companies Act 71 of 2008 will be considered prior to any repurchases being effected.
Telecommunication Activities
The Board and management of Huge Telecom (“the Management”) expect the market for telecommunications products and services to experience significant wholesale price compression in the immediate future. This outlook is good for Huge Telecom given that wholesale price compression equates to lower input prices and correspondingly higher profit margins. The most significant moves are expected from the Mobile Network Operators (“MNOs”), in 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.
CEO’s Report continued
Huge Group Limited Annual Report 20129
Wholesale price reductions by the MNOs will add further credibility to the provision of telephony services using fixed cellular routing (“FCR”) and the concomitant use of the wireless GSM last-mile to deliver these telephony services. This will improve the position of Huge Telecom relative to that of its Voice over Internet Protocol (“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 Huge Telecom is in a relatively stronger position with the MNOs in the event of significant wholesale price competition because, unlike the VOIP proponents, Huge Telecom 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 Huge Telecom 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 Least Cost Routing (“LCR”) to VoIP, given the capital investments that they have now made in their VoIP networks, the long term data infrastructure contracts into which their clients may have had to enter, 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 Huge Telecom is one of the best placed providers of corporate telephony solutions to benefit from this. Huge Telecom 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.
Huge Telecom 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
CEO’s Report continued
Huge Group Limited Annual Report 2012 10
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 individual voice channel), there is natural redundancy and fail-over built into the GSM’s networks’ architecture 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 Huge Telecom 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.
James HerbstChief Executive Officer
CEO’s Report continued
Huge Group Limited Annual Report 201211
Review of operations
Huge Telecom
Huge Telecom is the Group’s principal revenue generator. Total turnover for the financial year amounted to R320 million, down 26,5% from the previous comparable period. This downturn can be attributed in part to the cessation of connection incentive bonuses on the part of the Mobile Network Operators, which bonuses had in the past constituted a sizeable portion of revenue. Profit before taxation deteriorated from R4.2 million to a loss of R14,3 million, whilst net asset value per share decreased. Management continues to monitor and implement stringent control of input costs.
CentraCell
Total turnover for the financial year amounted to R62.4 million, down 27,7% from the previous comparable period. However, loss before taxation improved from R9.4 million to a profit of R12,5 million, whilst net asset value per share increased slightly. Management continues to monitor and implement stringent control of input costs.
Huge Telecom Board:Left to right: Dion Willis, Dave Deetlefs, James Herbst, Amil de Moura, Neil Wensley
Huge Group Limited Annual Report 2012 12
Huge Group Limited
13
Sustainability Report
Introduction
The Board of Huge is pleased to present to stakeholders of the Company the second sustainability report prepared in terms of recent developments and guidelines in the international corporate reporting arena. This initiative is a continuation of the process begun in 2011 which is continuously reviewed and refined by the Company, allowing Huge to move closer towards the goals of sustainability reporting and comprehensive sustainable development, as well as being indicative of the Company’s commitment to attaining those goals.
As stated in the 2011 Annual Report, the Board understands that sustainability reporting is an on-going task which requires continuous refinement. The Board has therefore built on the previous Sustainability Report, and shall continue to do so over the next reporting periods.
Scope of Report
All activities of the Group over which the Board and senior management have control, have been included in this report insofar as practical and deemed necessary.
CORPORATE GOVERNANCE REPORT
Introduction
All JSE listed companies are required to disclose the extent of their compliance with the King Code as amended from time to time. The Board of Huge is committed to the principles and guidelines of the King Code, and at all times endeavours to ensure adherence thereto where applicable and practical. The Company is committed to the principles of fairness, accountability, responsibility, discipline, independence, social responsibility and transparency as advocated by the King Code, and constantly strives to ensure ethical management, prudent decision-making and sound corporate governance.
The Board
Structure of the Board
The Board of Huge consists of a unitary Board which is assisted in fulfilling its duties and responsibilities by a Combined Audit and Risk Committee, and a Combined Remuneration and Nomination Committee. In compliance with the requirements of the Companies Act, 71 of 2008 and the accompanying Companies Regulations, a Social and Ethics Committee was appointed after year-end but prior to the deadline of 1 May 2012.
Changes to the Board post its year end
Subsequent to its year end, Mr Vincent Mokholo was appointed Executive Chairman of the Company, and Mr Stephen Tredoux became the Lead Independent Non-executive Director of the Company after the resignation of Mr Kenneth Jarvis. Mr Brian McQueen resigned on 28 June 2012, and Mr Dennis Gammie was appointed on 28 June 2012. A brief curriculum vitae for Mr Gammie is presented below:
Dennis Ronald Gammie (59) – Non-executive director, CA (SA)
Appointed: 28 June 2012 Dennis is a CA (SA) and has previously served as the Financial Director of the Imperial Group, Murray & Roberts Materials and the Aveng Group. Prior to taking early retirement, Mr Gammie served as an executive director on the board of the Aveng Group, where he was Chairman of the Growth Committee, the Tender Risk Committee, and acting Managing Director of an Aveng Group subsidiary company for a time. Mr Gammie brings a wealth of financial experience to the board of Huge.
Independence of the Board and Board Balance
The Board of directors of the Huge Group comprises three executive and four non-executive directors, two of whom are independent non-executive directors. All of the current non-executive directors are of sufficient standing that their views carry significant weight in the Board’s decision making process, as well as the Board’s adherence to stringent corporate governance. The directors all bring a wide range of experience, insight, skills and independence to the Board. The pre-dominance of non-executive directors ensures that independent judgement is maintained at all times. All conflicts of interest are declared by Board members, and members recuse themselves from decision-making processes when such conflicts of interest exist.
Huge Group Limited
14
Sustainability Report (continued)
CORPORATE GOVERNANCE REPORT (continued)
Independence of the Board and Board Balance (continued)
As at year-end, all of the directors had attended the Directors Induction Programme as stipulated by the JSE’s Listings Requirements, with the exception of the new financial director, Mr Neil Wensley, who attended the Directors Induction Programme during July 2012, and Mr Michael Beamish, who shall be attending the Directors Induction Programme during September 2012, being the first available Cape Town based course.
In line with best practice, the roles of Chairman and Chief Executive Officer are separated. The non-executive Chairman, who has many years of relevant industry experience, provides objective guidance and leadership to the Board, presides over Board and shareholder meetings, and ensures both the smooth functioning and corporate governance compliance of the Board. The Chief Executive Officer leads the Executive Committee of the Group, and co-ordinates proposals compiled by the Executive Committee for Board consideration. There is a clear balance of power and authority at Board level, in order to ensure that no one director has unfettered powers of decision-making.
Board responsibilities
The Board responsibilities encompass the following:
the formulation and adoption of Group strategy;
risk management;
acquisition and disposal policies;
corporate finance decisions;
management of the relationship with and expectations of all stakeholders;
internal control in order to protect stakeholder wealth;
corporate governance; and
compliance with all regulatory requirements, including but not limited to compliance with the Listings Requirements of the JSE.
The Board is ultimately responsible for the Group’s performance, which includes enhancing and protecting the Group’s resources and acting in the best interests of all stakeholders at all times. In fulfilling this responsibility, the Board constantly reviews the controls and procedures that are in place in order to ensure the accuracy and integrity of accounting records and procedures. The directors’ statement of responsibility is set out on page 27 of this report.
Appointments to the Board
There is a formal and transparent procedure with regard to appointments to the Board. The Combined Remuneration and Nomination Committee makes recommendations to the Board with regard to all new Board appointments, after concluding a thorough interviewing process with potential candidates. Following the recommendation of the Combined Remuneration and Nomination Committee, the Board as a whole will consider any new appointments. New directors appointed to the Board during the year are required to attend the Directors Induction Programme in terms of the JSE Listings Requirements, and their appointments are ratified by shareholders at the Annual General Meeting of the Company immediately following their appointment.
Advice
The directors all have unlimited access to the Company Secretary, Designated Advisor, Auditor and any other such professional persons with whom they may wish to consult. In addition, directors are entitled to ask questions of any employees of the Group and enjoy unrestricted access to Company documentation and relevant information.
Huge Group Limited
15
Sustainability Report (continued)
CORPORATE GOVERNANCE REPORT (continued)
Audit and Risk Committee
Huge has a Combined Audit and Risk Committee, of whom the members during the year under review were Mr BA McQueen (Chairman), Mr KD Jarvis and Mr SP Tredoux. Subsequent to year-end, the Combined Audit and Risk Committee was restructured in order to ensure full compliance both with the Companies Act 71 of 2008, and the third King Code on Corporate Governance.
The Combined Audit and Risk Committee is now chaired by Mr DR Gammie, an independent non-executive director, and the other members are Messrs SP Tredoux and MR Beamish, who are both non-executive directors of the Company. In addition, representatives of the Designated Advisor attend all meetings of the Combined Audit and Risk Committee, which meetings are held at least twice per year. The Company Secretary is also in attendance at all meetings, and any other relevant persons are invited to attend as and when deemed necessary or beneficial.
Professor Steven Firer has been contracted as a consultant to the Combined Audit and Risk Committee with regard to the interpretation and application of International Financial Reporting Standards.
The functions of the Combined Audit and Risk Committee comprise the following:
monitor corporate risk assessment processes;
review the risk profile and strategy of the Group;
review internal control systems;
review external audit reports to ensure that there are no major deficiencies and/or breakdowns in control;
review the audit plan and progress each year;
determine and approve any non-audit services provided by the external auditors;
review and recommend the approval of any financial information published either on The Stock Exchange News Service of the JSE (“SENS”) or in the press;
ensure that any major deficiencies and/or breakdown in controls are timeously rectified;
review the nomination, appointment, independence, performance and remuneration of the external auditor;
satisfy themselves as to the qualifications and suitability of the Financial Director;
review any suspected theft or fraud, and monitor procedures to ensure that the Group’s fraud control plans are being implemented;
review and monitor compliance with taxation responsibilities, legal, regulatory and industry code responsibilities; and
review and monitor compliance with Group policies and thereby promote an ethical business culture.
The objectives of the Combined Audit and Risk Committee are to assist the Board in safeguarding the assets of the Group, the operation of adequate systems of internal control and the preparation of accurate financial reports and statements in compliance with all applicable legal requirements and accounting standards. To this end the Combined Audit and Risk Committee reviews the annual financial statements prior to making a recommendation to the Board in this regard. In addition, the Combined Audit and Risk Committee is required to evaluate the qualifications, experience and performance of the Financial Director of the Group in order to ensure that the incumbent is fully qualified for the role which he or she fulfils. During the year under review, Ms Yvette Neverling, the Acting Financial Director of the Group, resigned with effect from 1 June 2011, and Mr Neil Brian Wensley was appointed Group Financial Director with effect from 1 August 2011. The Combined Audit and Risk Committee conducted a thorough interview process with Mr Wensley, and is satisfied as to his experience and expertise as required to fulfil this position.
The external auditors of the Company, being BDO South Africa Incorporated, are invited to attend all meetings, and have unrestricted access to both committee and Board members.
The Group has not yet established an internal audit function, and at present this function is carried out by the financial and revenue assurance departments of the Company’s principle subsidiary, being Huge Telecom. The Combined Audit and Risk Committee is of the opinion that the management and employees within these divisions have the necessary skills and expertise in finance and internal controls. However, the committee continues to assess the need for an internal audit function and should the need arise to outsource this function, it will make the necessary recommendations in this regard to the Board.
Huge Group Limited
16
Sustainability Report (continued)
CORPORATE GOVERNANCE REPORT (continued)
Remuneration and Nomination Committee
During the year under review, the Group had a Combined Remuneration and Nomination Committee, of whom the members were Mr KD Jarvis (Chairman), Mr BA McQueen and Mr SP Tredoux, of whom Messrs McQueen and Jarvis are independent. Subsequent to year end, the Combined Remuneration and Nomination Committee was dissolved and responsibility for nominations reverted to the Board as a whole. A new Remuneration Committee was established, of whom the members are Mr MR Beamish (Chairman), Mr AD Potgieter and Mr VM Mokholo. Executive directors of the company are invited to attend when deemed necessary and/or appropriate by the Committee.
The Committee is responsible for:
recommendations as to executive remuneration;
establishment of a transparent procedure, policy and approach for the determination of remuneration packages for directors and senior management;
ensuring that remuneration packages are of a sufficient standard to attract and retain quality executives for the organisation;
ensuring that levels of remuneration are market-related and in line with best practices and industry standards;
making recommendations to the Board with regard to all new appointments to the Board; and
Considering the balance and effectiveness of the Board.
The Combined Remuneration and Nomination Committee meets at least once a year, and all meetings are in addition attended by the Designated Advisor and the Company Secretary.
Board and Board Committee Meeting Attendance
The table below indicates all regular and extra-ordinary Board meetings and Board Committee meetings held during the year, and attendance thereat:
Director Board meetings
Percentage attended
Combined Audit and
Risk Committee
meetings
Percentage attended
Combined Remuneration
and Nomination Committee
meetings
Percentage attended
SP Tredoux Non-executive Chairman
4/5 80 4/5 80 2/2 100
JC Herbst Chief Executive Officer
5/5 100 5/5 (invitee) 100 1/2 (invitee) 50
AD Potgieter Non-executive director
5/5 100 1/5 (invitee) 20 - -
NB Wensley Group Financial director
2/2 100 2/2 (invitee) 100 - -
Y Neverling Acting Group Financial director
3/3 100 3/3 (invitee) 100 - -
VM Mokholo Executive director
5/5 100 2/5 (invitee) 40 - -
KD Jarvis Lead Independent Non-executive director
5/5 100 4/5 80 2/2 100
Huge Group Limited
17
Sustainability Report (continued)
CORPORATE GOVERNANCE REPORT (continued)
Board and Board Committee Meeting Attendance (continued)
BA McQueen Independent Non-executive director
5/5 100 4/5 80 2/2 100
MR Beamish Non-executive director
3/5 60 1/5 (invitee) 20 - -
Designated Advisor 5/5 100 5/5 (invitee) 100 2/2 (invitee) 100
Company Secretary 5/5 100 5/5 100 2/2 100
Auditor - - 4/5 (invitee) 80 - -
Note:
Y Neverling resigned from the Board of directors on 1 June 2011. NB Wensley was appointed to the Board of directors on 1 August 2011. KD Jarvis resigned from the Board of directors on 7 June 2012. BA McQueen resigned from the Board of directors on 28 June 2012.
Fees paid to Non-executive Directors
The fees paid to non-executive directors are discussed by the Combined Remuneration and Nomination Committee and recommended to the Board. In light of the current economic climate, all non-executive directors decided to waive an increase in fees for the 2010 and 2011 financial years. With effect from 1 March 2011, and in line with the King III report on Corporate Governance, the non-executive directors were paid a monthly retainer of R15 000 per month, and the non-executive chairman, a monthly retainer of R25 000 per month. The current meeting fees are given in the table below:
Chairman Member Board 10 000 10 000 Board Committee 10 000 10 000
The non-executive directors proposed to the Combined Remuneration and Nomination Committee that these fees remain unchanged for the 2012 financial year, which proposal was accepted.
In addition, the Board undertook to schedule Board Committee and Board meetings on the same days, in order to ensure that the cost of non-executive director remuneration would be kept to a minimum each year. Any ad hoc special Board meetings over and above the regular Board meetings attract a fee of R3 000, and will be scheduled for 16h00 on any given day, for a maximum period of two hours.
Details of the remuneration of the directors of the Company are set out in note 40 of the annual financial statements.
Accounting and internal controls
The external auditor, BDO South Africa Incorporated, is responsible for reporting on whether the financial statements are fairly presented in conformity with International Financial Reporting Standards. The external auditor offers reasonable but not absolute assurance on the accuracy of financial disclosures. The preparation of the financial statements is the responsibility of the directors. The Combined Audit and Risk Committee sets the principles for the use of the services of the external auditor for non-audit purposes.
The Board has established controls and procedures to ensure the accuracy and integrity of the accounting records, to provide reasonable assurance that assets are safeguarded from loss or unauthorised use, to ensure that the financial statements may be relied upon, and for preparing the financial statements. The Board acknowledges the need to rigorously review the accuracy and adequacy of the accounting systems and of internal controls.
Huge Group Limited
18
Sustainability Report (continued)
CORPORATE GOVERNANCE REPORT (continued)
Internal audit
With regard to an Internal Audit function, the Company has not presently established an Internal Audit function. Due to the historical nature of the Company’s legal structure, its assets and its size and stage of the development, an Internal Audit function was not considered necessary. The need for an Internal Audit function remains a standing item on every Board agenda and is therefore continuously reassessed.
Broad Based Black Economic Empowerment (“BBBEE”)
The Company continues to look for methods by which to increase its BBBEE rating through choice of suppliers and employees. Huge is committed to the achievement of BBBEE initiatives by each of its subsidiary companies.
Trading Company Shares
The Company enforces a restricted period for dealing in its shares by directors or their associates. In addition, no director nor an associate of a director is permitted to deal in the Company’s shares without the prior authorisation of the Chairman. A register of clearances to deal is kept at the Company’s registered office.
Company Secretary
The Company Secretary up until 1 August 2012 was Arcay Client Support Proprietary Limited. As from 1 August 2012, Jean Tyndale-Biscoe was appointed Company Secretary of the Group. The Company Secretary provides members of the Board with guidance and advice regarding responsibilities, duties and powers, and ensures that all new legislation relevant to the Company is brought to the attention of the Board. The directors of the Company have unrestricted access to the Company Secretary. In addition, the Company Secretary records proceedings of meetings, assists with the preparation of the agenda, and ensures that proper procedures are followed during all Board meetings.
Code of Ethics
The Company has a formal Code of Conduct incorporating a Code of Ethics. The Code of Ethics applies to the Group as a whole and all employees receive a copy.
The following guiding principles apply to the Code of Ethics:
businesses should compete and operate in accordance with the principles of free enterprise;
free enterprise is tempered by the observance of all relevant legislation and generally accepted principles with regard to ethical business practices;
ethical behaviour is characterised by the principles of integrity, reliability and a commitment to avoid harm;
business activities should benefit all participants therein; and
equivalent standards of ethical behaviour are expected from all participants in the business process.
Principles contained in King III with which the Company has not as yet complied and clarification of the non-compliance
The Board endorses the principles contained in the King III report on corporate governance and confirms its commitment to those principles where, in the view of the Board, they apply to the business. Compliance is monitored regularly and the Board has undertaken an internal review process in determining compliance.
Huge Group Limited
19
Sustainability Report (continued)
CORPORATE GOVERNANCE REPORT (continued)
Principles contained in King III with which the Company has not as yet complied and clarification of the non-compliance (continued)
Governance element and associated principle Comply Partially comply Under review / do not comply
ETHICAL LEADERSHIP AND CORPORATE CITIZENSHIP
Effective leadership based on an ethical foundation X
Effective management of company’s ethics X
Responsible corporate citizenship X
Assurance statement on ethics in integrated annual report X
BOARDS AND DIRECTORS
The Board is the focal point for, and custodian of, corporate governance X
Directors act in the best interests of the Company X
Framework for the delegation of authority has been established X
Directors are appointed through a formal process X
The Board is assisted by a competent, suitably qualified and experienced Company Secretary
X
Appointment of well-structured committees and oversight of key functions X
Directors and executives are fairly and responsibly remunerated X
The Company’s remuneration policy is approved by its shareholders X
Strategy, risk, performance and sustainability are inseparable X
The Chairman of the Board is an independent non-executive director X 1
The Board is comprised with a balance of power, with a majority of non-executive directors who are independent
X
Formal induction and on-going training of directors is conducted X
Regular performance evaluation of the Board, its committees and the individual directors
X 2
An agreed governance framework between the group and its subsidiary boards is in place
X
Remuneration of directors and senior executives is disclosed X
AUDIT COMMITTEE
Effective and independent X
Chaired by an independent non-executive director X
A combined assurance model is applied to improve efficiency in assurance activities
X 3
Suitably skilled and experienced non-independent non-executive directors X
Oversees integrated reporting X
Satisfies itself on the expertise, resources and experience of the Company’s finance functions
X
Oversees internal audit X 4
Oversees the external audit process X
Integral to the risk management process X
Reports to the Board and shareholders on how it has discharged its duties X
Huge Group Limited
20
Sustainability Report (continued)
CORPORATE GOVERNANCE REPORT (continued)
Principles contained in King III with which the Company has not as yet complied and clarification of the non-compliance (continued)
GOVERNANCE OF RISK
The Board is responsible for the governance of risk and setting levels of risk tolerance
X
The Board delegates the process of risk management to management X
Frameworks and methodologies are implemented to increase the probability of anticipating unpredictable risks
X
The Board receives assurance on the effectiveness of the risk management process
X
The risk committee assists the Board in carrying out its responsibilities X
The Board ensures that risk assessments and monitoring is performed on a continual basis
X
Management implements appropriate risk responses X
Sufficient risk disclosure to stakeholders X
GOVERNANCE OF INFORMATION TECHNOLOGY
The Board is responsible for information technology (IT) governance X
Management is responsible for the implementation of an IT governance framework
X
IT is an integral part of the company’s risk management X
The Combined Audit and Risk Committee assists the Board in carrying out its IT responsibilities
X
IT is aligned with the performance and objectives of the Company X
The Board monitors and evaluates significant IT investments and expenditure X
IT assets are managed effectively X
COMPLIANCE WITH LAWS, CODES, RULES AND STANDARDS
The Board ensures that the Company complies with relevant laws X
Compliance risk forms an integral part of the Company’s risk management process
X
The Board and directors have a working understanding of the relevance and implications of non-compliance
X
The Board has delegated to management the implementation of an effective compliance framework
X
GOVERNING STAKEHOLDER RELATIONSHIPS
Appreciation that stakeholders’ perceptions affect the Company’s reputation X
There is an appropriate balance between its various stakeholder groupings X
Transparent and effective communication to stakeholders X
Delegated to management to proactively deal with stakeholder relationships X
Equitable treatment of stakeholders X
Disputes are resolved effectively and timeously X
Huge Group Limited
21
Sustainability Report (continued)
CORPORATE GOVERNANCE REPORT (continued)
Principles contained in King III with which the Company has not as yet complied and clarification of the non-compliance (continued)
INTEGRATED REPORTING AND DISCLOSURE
Ensures the integrity of the Company’s integrated annual report X
Sustainability reporting and disclosure is independently assured X
Sustainability reporting and disclosure is integrated with the Company’s financial reporting
X
Notes:
1. In order to ensure compliance with the requirements for the Combined Audit and Risk Committee, the Board was restructured and an executive director was appointed as the Chairman. There are sufficient independent directors on the Board to ensure good governance and balance in all matters.
2. Performance evaluation is in place for the executive directors. The Board is considering how best to implement performance evaluations for the non-executive directors.
3. The Group does not have any independent assurance processes in place at present. 4. The Combined Audit and Risk Committee continues to evaluate the need for an Internal Audit Function, but is of the opinion that the size of
the Group does not warrant an Internal Audit Function at present.
DESIGNATED ADVISOR
In accordance with the JSE’s Listings Requirements relating to companies listed on the Alternative Exchange, the Company is required to have a Designated Advisor at all times. The Company’s Designated Advisor is Arcay Moela Sponsors Proprietary Limited.
RISKS
The Group has a comprehensive risk matrix which is continually reviewed and updated by the Board. All potential risks are timeously brought to the Board’s attention. Risk assessment is a standing item on the agenda of Board meetings and at least one Combined Audit and Risk Committee meeting per year is dedicated to the revision and discussion of the risk matrix.
STAKEHOLDERS
The Group is committed to on-going and effective communication with all stakeholders, and subscribes to a policy of open and timeous communication. In addition, the Group recognises that there are many varying stakeholders within the business, with differing requirements. All stakeholders are encouraged to visit the Group’s website regularly at www.hugegroup.com, for up to date and pertinent information regarding the Group and its activities.
Huge Group Limited
22
Report of the Combined Audit and Risk Committee
The Audit and Risk Committee for the year under review included the following non-executive directors as members:
Mr BA McQueen (Chairman) - Independent non-executive director (resigned 28 June 2012)
Mr KD Jarvis (Member) - Lead Independent non-executive director (resigned 7 June 2012)
Mr SP Tredoux (Member) - Non-executive chairman
In addition, although the JSE no longer requires the Designated Advisor to be a member of an audit committee, all Combined Audit and Risk Committee meetings were attended by the Designated Advisor.
Statement of The Combined Audit and Risk Committee responsibilities for the year ended 29 February 2012
The role of the Combined Audit and Risk Committee is to assist the Board of directors by performing an objective and independent review of the functioning of the organisation’s finance and accounting control mechanisms. It exercises its functions through close liaison and communication with corporate management and the external auditor. The committee met five times during the 2012 financial year.
The committee is guided by its terms of reference, dealing with membership, structure and levels of authority and has the following responsibilities:
ensuring compliance with applicable legislation and the requirements of regulatory authorities;
nominating for appointment a registered auditor who, in the opinion of the committee, is independent of the Company;
considering matters relating to financial accounting, accounting policies, reporting and disclosure;
considering internal and external audit policy including determination of fees and terms of engagement;
considering the activities, scope, adequacy, and effectiveness of the Internal Audit function and audit plans;
considering the expertise and experience of the Financial Director;
reviewing and approving the external audit plans, findings, reports, fees and determining and approving any non-audit services that the auditor may provide to the Company;
ensuring compliance with the Code of Corporate Practices and Conduct; and
ensuring compliance with the Company’s Code of Ethics.
The Combined Audit and Risk Committee addressed its responsibilities properly in terms of the Charter during the 2012 financial year. One of its mandate responsibilities was the assessment of the independence of the auditor. The committee is satisfied that the auditor was independent of the Company.
No changes to the Charter were adopted during the 2012 financial year. In addition, the committee has established a policy and procedures with regard to use of the external auditor for non-audit services.
During the course of the financial year, Ms Yvette Neverling, who served as the Acting Group Financial Director, resigned, and Mr Neil Wensley was appointed as Group Financial Director with effect from 1 August 2011. The Combined Audit and Risk Committee was extensively involved in the interview process, and was therefore satisfied as to the expertise and experience of the financial director.
With regard to an Internal Audit function, the Company has not presently established an Internal Audit function. Due to the historical nature of the Company’s legal structure, its assets and its size and stage of the development, an Internal Audit function was not considered necessary. Since the Company’s listing the need for an Internal Audit function is continually assessed.
Management has reviewed the financial statements with the members of the Combined Audit and Risk Committee. The committee has also reviewed them without management or the external auditor being present. The appropriateness of the accounting policies was discussed with management and the external auditor. The committee considers the financial statements of Huge to be a fair presentation of its financial position on 29 February 2012, its financial performance for the year ended 29 February 2012, the changes in equity and cash flows for the period then ended, in accordance with International Financial Reporting Standards and the Companies Act.
Brian Alexander McQueen
Chairman of the Combined Audit and Risk Committee
Huge Group Limited
23
Huge Group Limited (Registration number 2006/023587/06)
Group Annual Financial Statements and Annual Financial Statements for the year ended 29 February 2012
Huge Group Limited
24
General Information
Country of incorporation and domicile South Africa
Nature of business and principal activities Investment holding company currently holding investments in subsidiary companies operating in the telecommunications, technology and media industries
Directors Michael Ronald Beamish
Dennis Ronald Gammie Appointed 28 June 2012
James Charles Herbst
Kenneth Delroy Jarvis Resigned 7 June 2012
Brian Alexander McQueen Resigned 28 June 2012
Vincent Mokhele Mokholo
Yvette Neveling Resigned 1 June 2011
Anton Daniel Potgieter
Stephen Peter Tredoux
Neil Brian Wensley Appointed 1 August 2011
Registered office 3M Building
1st Floor, East Wing
146a Kelvin Drive
Woodmead
2157
Business address 3M Building
1st Floor, East Wing
146a Kelvin Drive
Woodmead
2157
Postal address PO Box 16376
Dowerglen
1612
Auditors BDO South Africa Incorporated
Registered Auditors
Business address
BDO South Africa Incorporated
22 Wellington Road
Parktown
2193
Postal address
Private Bag X60500
Houghton
2041
Huge Group Limited
25
General Information (continued)
Company Secretary Arcay Client Support Proprietary Limited (up until 1 August 2012)
Business address
Arcay House II
Number 3 Anerley Road
Parktown
2193
Postal address
PO Box 62397
Marshalltown
2107
Jean Tyndale-Biscoe (from 1 August 2012)
Business address
3M Building
1st Floor, East Wing
146a Kelvin Drive
Woodmead
2157
Postal address
PO Box 16376
Dowerglen
1612
Income tax reference number 9378909155
VAT reference number 4390253955
Level of assurance These annual financial statements have been audited in compliance with the applicable requirements of the Companies Act 71 of 2008
Prepared by NB Wensley
Published 31 August 2012
Huge Group Limited
26
The reports and statements set out below comprise the Group annual financial statements and annual financial statements presented to the shareholders: Index
Page
Directors' responsibilities and approval 27
Independent Auditor's report 28
Directors' report 29
Declaration by the Company Secretary 40
Statements of financial position 43
Income statements 45
Statements of comprehensive income 46
Statements of changes in equity 47
Statements of cash flows 51
Notes to the annual financial statements 52
Supplementary information - Shareholder analysis 111
Huge Group Limited
27
Directors’ responsibilities and approval
The directors are required in terms of the Companies Act 71 of 2008 as amended, (“the Companies Act”) to maintain adequate accounting records and are responsible for the content and integrity of the group annual financial statements and annual financial statements and related financial information included in this report. The directors are responsible to ensure that these financial statements fairly present the state of affairs of Huge Group Limited (“Huge” or “the Company”) and its subsidiary companies, associate companies and joint venture companies (“the Group”) as at the end of the financial year and the results of their operations and cash flows for the period then ended, in conformity with International Financial Reporting Standards and the Companies Act.
These group annual financial statements and annual financial statements are prepared in accordance with International Financial Reporting Standards and are based upon appropriate accounting policies consistently applied and supported by reasonable and prudent judgements and estimates.
The directors acknowledge that they are ultimately responsible for the system of internal financial control established by the companies in the Group and place considerable importance on maintaining a strong internal financial control environment. To enable the directors to meet these responsibilities, the Board of directors (“the Board”) sets standards for internal financial control aimed at reducing the risk of error or loss in a cost effective manner. These standards include the proper delegation of responsibilities within a clearly defined framework, effective accounting procedures and adequate segregation of duties to ensure an acceptable level of risk. The internal financial controls are monitored throughout the Group and all employees are required to maintain the highest ethical standards in ensuring the Group’s business is conducted in a manner that in all reasonable circumstances is above reproach. The focus of risk management in the Group is identifying, assessing, managing and monitoring all known forms of risk. While operating risk cannot be fully eliminated, the directors endeavour to minimise it by ensuring that appropriate infrastructure, internal financial controls, systems and ethical behaviour are applied and managed within predetermined procedures and constraints.
The directors are of the opinion that based on the information and explanations given by management personnel, the system of internal financial control provides reasonable assurance that the financial records may be relied on for the preparation of these financial statements. However, any system of internal financial control can provide only reasonable, and not absolute, assurance against material misstatement or loss, whether due to fraud or error.
The directors have reviewed both the Company's and the Group’s, cash flow forecast for the forthcoming financial year to 28 February 2013 and in the light of this review and the current financial position they are satisfied that the Company and Group has, or has access to, adequate resources to continue as a going concern for the foreseeable future.
The external independent auditor is responsible for reporting on whether the group annual financial statements and annual financial statements are fairly presented in accordance with the applicable financial reporting framework.
The group annual financial statements and annual financial statements set out on pages 43 to 110 which have been prepared on the going concern basis, were approved by the Board on 31 August 2012 and were signed on its behalf by:
James Charles Herbst Neil Brian Wensley
Huge Group Limited
28
INDEPENDENT AUDITOR’S REPORT ON THE CONSOLIDATED AND SEPERATE FINANCIAL STATEMENTS To the Shareholders of Huge Group Limited We have audited the consolidated and separate financial statements of Huge Group Limited set out on pages 43 to 111, which comprise the statements of financial position as at 29 February 2012, and the statements of comprehensive income, statements of changes in equity and statements of cash flows for the year then ended, and the notes, comprising a summary of significant accounting policies and other explanatory information. Directors’ Responsibility for the Consolidated Financial Statements The company’s directors are responsible for the preparation and fair presentation of these consolidated and separate financial statements in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa, and for such internal control as the directors determine is necessary to enable the preparation of consolidated and separate financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these consolidated and separate financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated and separate financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated and separate financial statements present fairly, in all material respects, the consolidated and separate financial position of Huge Group Limited as at 29 February 2012, and its consolidated and separate financial performance and consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards, and the requirements of the Companies Act of South Africa. Other reports required by the Companies Act As part of our audit of the consolidated and separate financial statements for the year ended 29 February 2012, we have read the Directors’ Report, the Audit Committee’s Report and the Company Secretary’s Declaration for the purpose of identifying whether there are material inconsistencies between these reports and the audited consolidated and separate financial statements. These reports are the responsibility of the respective preparers. Based on reading these reports we have not identified material inconsistencies between these reports and the audited consolidated and separate financial statements. However, we have not audited these reports and accordingly do not express an opinion on these reports. ……………………………………… BDO South Africa Incorporated Registered Auditors Per: JG Marais Partner 30 August 2012 22 Wellington Road Parktown 2193
Huge Group Limited
29
Directors’ report
The directors submit their report for the year ended 29 February 2012.
1. Incorporation
The Company was incorporated on 31 July 2006 as Northern Lights Trading 107 Proprietary Limited and obtained its certificate to commence business on the same day.
The Company’s name was changed, by special resolution of the shareholders passed on 11 September 2006, to Vanquish Fund Managers Proprietary Limited on 12 September 2006.
The Company’s name was changed again, this time by special resolution of the shareholders passed on 2 July 2007, to Huge Group Limited (“Huge”) on 26 July 2007.
2. Review of activities - main business and operations
The Company is an investment holding company currently holding investments in subsidiary and associate companies operating in the telecommunications, technology and media industries. The Group operates principally within the borders of South Africa. The Company, through its wholly owned subsidiary company Huge Telecom Proprietary Limited (“Huge Telecom”), had a shareholding in an associate company that operated in Namibia, but this was sold on 9 December 2011.
Telecommunications
Huge Telecom and CentraCell Proprietary Limited (“CentraCell”) wholly owned subsidiary companies of the Company, are engaged in providing managed services focused on telecommunication expense management to a wide base of corporate enterprise customers ranging from large and medium corporate to small and medium enterprises, which services include call traffic management services.
Huge Telecom disposed of its shareholding in TelePassport Communications Proprietary Limited (“TelePassport”), a Namibian company, to Luigi’s Trust, a trust formed for the benefit of Anton Daniel Potgieter, a related party to Huge, for a purchase consideration of R4 900 000. The shareholding represented 49% of the entire issued share capital of TelePassport. The effective date of the sale transaction was 9 December 2011.
The purchase consideration of R4 900 000 due to Huge Telecom in terms of the sale agreement was settled by Mr Potgieter transferring 3 500 000 Huge Group Limited ordinary shares to Huge Telecom on the closing date of the sale agreement.
TelePassport is based in Windhoek, Namibia. TelePassport was formed in 2004 by Huge Telecom and 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 also has a different regulatory environment as far as telecommunications services are concerned making the management thereof different to the Group’s South African operation.
Huge is also committed to continue repurchasing its own shares and the sale transaction accordingly afforded the Company the opportunity of doing so without the outflow of cash resources.
Software, media and technology
Huge Media Proprietary Limited (“Huge Media”), a wholly owned subsidiary of the Company, is engaged in digital and other media ownership, promotions, the sale and resale of advertising, and the management of related ancillary activities and services. A decision was made by the Board before the end of the 28 February 2011 financial year to sell the business of Huge Media to Anton Daniel Potgieter, a director and therefore related party to the Company, for a purchase consideration equal to R1. Refer to paragraph 5 below for further details. The sale agreement in this regard has lapsed and has no further force nor effect, and the residual assets have therefore been written off. During the 29 February 2012 financial year, the Board decided to broaden the focus of Huge Media to include software ownership, development and licencing.
Eyeballs Mobile Advertising Proprietary Limited (“Eyeballs”), a 77% held subsidiary company of the Company, is engaged in the development of software for innovative and affordable real time, permission based, high-impact and targeted advertising to mobile phones and internet users.
3. Financial results
These financial results are presented in Rand, which is the functional currency of the Company. The financial position and the financial performance of the Company and the Group are fully set out in the attached financial statements.
Huge Group Limited
30
Directors’ report (continued)
4. Going concern
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.
The Board confirms that it had regard to the following factors in arriving at its conclusion that the Company and the Group will continue to operate as a going concern for a twelve month period post the date of approval of these financial statements:
The expected improvement in profitability, recorded in the budget approved by the Board, of Huge Telecom and CentraCell for the year that will end on 28 February 2013.
The impact of the MTN Service Provider Proprietary Limited dispute and the possible settlement thereof. Further details in this regard are provided in note 11, 14 and 22.
The terms of trade received from the major suppliers to Huge Telecom and CentraCell, including Vodacom Service Provider Company Proprietary Limited.
Funding undertakings from Messrs. MR Beamish, JC Herbst, VM Mokholo and AD Potgieter, who have irrevocably undertaken, until 31 August 2012 to advance R5 million (“the Loan”) each to the Company, on written notice being given by the Board that the Company wishes to draw down on the Loan, subject to the Loan being subordinated in favour of creditors of the Company, the Loan bearing interest at the prime overdraft rate, compounded monthly and charged in arrears, and on payment terms where the Loan will be repaid over a period that is no shorter than six months.
The impact of lower interconnection fees (or termination fees as they are more appropriately referenced) have been carefully considered by the Board and it is the opinion of the Board that the strategies identified by Huge Telecom and CentraCell mitigated the full extent of the impact.
Huge Telecom is party to certain loan agreements with FirstRand Bank Limited. Although certain covenants of the loan agreements were in breach at the end of the reporting period, FirstRand Bank Limited has not given written notice to the Company to remedy the breach; neither has it notified Huge Telecom that it intends cancelling the facilities. Correspondence received by the Company after the end of the financial year records that the facilities remain in place and will be reviewed again on an ad hoc basis. Accordingly the overdraft remains reflected as a current liability.
The current credit facilities of the Company and its subsidiary companies are sufficient to meet the on-going needs of the Company and its subsidiary companies.
The Group is solvent and liquid. There are certain subsidiary companies and associate companies within the Group who operate with accumulated deficits. The companies are:
Huge Telecom with a net deficit of R1 623 351 (2011: R10 312 353 retained earnings);
CentraCell with a net deficit of R2 413 260 (2011: R11 400 622);
Huge Media with a net deficit of R8 121 213 (2011: R7 692 998);
Eyeballs with a net deficit of R15 420 669 (2011: R14 671 809);
Huge Cellular Proprietary Limited (“HugeCel”) with a net deficit of R847 707 (2011: RNil);
Managed Voice Solutions Proprietary Limited (“MVS”), an associate company of Huge Telecom, with a net deficit of R2 216 004 (2011: R 690 758).
Ambient Mobile Proprietary Limited (“Ambient”), a subsidiary company of Huge Telecom, with a net deficit of R395 282 (2011: R 70 815).
Le Gacy Telecom (FRA) Proprietary Limited, trading as Legacy Telecom (“Legacy”), an associate company of Huge Telecom, acquired in the previous financial year, with a net deficit of R81 592 (2011: Nil).
The loans between Huge Media and Eyeballs and between each of these companies and Huge have been subordinated to enable them to settle their respective obligations as and when they fall due. Appropriate provisions have been raised by the Company against the recoverability of these loans.
MVS is a 33% held associate company of Huge Telecom. The loans held by Huge Telecom and the loans held by the remaining shareholders of MVS have been subordinated to enable it to settle its obligations as and when they fall due. No provision has been raised against the recoverability of the shareholder’s loan held by Huge Telecom against MVS given the agent’s commission currently being paid by Huge Telecom to MVS, which is considered adequate security for the recoverability of the loan in question.
Huge Group Limited
31
Directors’ report (continued)
4. Going concern (continued)
Cession and pledges are in place in favour of Telemasters Holdings Limited (“Telemasters”). Huge Telecom ceded and pledged to Telemasters 9 646 926 shares in Huge. HugeCel has provided security and Huge Telecom has guaranteed the obligation.
Taking into consideration the foregoing matters of record, as well as the future cash flow projections of the Company and the individual companies that comprise the Group, the directors believe the Group is a going concern and will remain a going concern for the twelve month period that follows the date of approval of these financial statements. Accordingly, the Company and the Group continue to adopt the going concern basis of preparing these financial statements.
5. Events that have taken place after the end of the reporting period
The option granted by Huge to the Nash Lewin Trust (“The Eyeballs Option”) lapsed at 17h00 on 31 March 2012.
The conditions precedent with regard to the sale of Huge Media were not fulfilled and therefore the sale is of no further force or effect.
With regard to the alleged contravention of section 85 of the Companies Act 1973 and section 5.69 of the JSE’s Listings Requirements, the FSB allowed the appeal of Messrs Herbst and Potgieter against the findings of the JSE, and in addition awarded costs. The FSB found further that section 5.69 read in conjunction with section 5.82 had been contravened but that no contravention of section 85 of the Companies Act 1973 had occurred.
With the exception of the above-mentioned matters, the directors are not aware of any other matters or circumstances arising since the end of the financial year to the date of this report that require disclosure or adjustment to the group financial statements and/or the annual financial statements.
6. Authorised and issued share capital
Issue by the Company of its ordinary shares
Date of issue Number Price per Value of
of shares share Transaction
(in cents) (R)
7 August 2007 353 399 250.00 883 498
5 March 2008 6 760 000 320.00 21 632 000
25 August 2008 5 000 000 300.00 15 000 000
TOTAL 12 113 399 37 515 498
The Company listed on the Alternative Exchange of the JSE's stock exchange (“JSE”) on 7 August 2007. In terms of its prospectus dated 1 August 2007, the Company privately placed 50 000 000 ordinary shares of 0.01 cents each at an issue price of 250 cents per share, increasing the number of ordinary shares in issue to 99 646 601.
In June 2010, the Company repurchased 6 212 105 ordinary shares, which were cancelled during July 2011, as they had been repurchased and the cancellation initiated prior to the promulgation of the Companies Act 71 of 2008. These ordinary shares were reflected as treasury shares in the previous financial year (please refer to note 17 to the notes to these financial statements).
On 4 August 2011, the Company announced that it had decided to exercise certain of the Directors’ options which had been entered into with past directors of the Group and subsidiary companies, as per the table below:
Option holder Number Price per Value of
of shares share transaction
(in cents) (R)
Michelle Allison Meth 233 600 51.40 120 000
Barend Jacobus Vorster 233 600 51.40 120 000
Gregory Wayne Wright 233 600 51.40 120 000
Eugene Volschenk 233 600 51.40 120 000
TOTAL 934 400 480 000
Shareholders approved the resultant specific repurchase of shares on 9 December 2011.
Huge Group Limited
32
Directors’ report (continued)
6. Authorised and issued share capital (continued)
During the year ended 29 February 2012, the Company repurchased 5 659 352 ordinary shares 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. Huge Telecom holds 9 646 926 ordinary shares in the Company.
Repurchase by the Company and its subsidiary companies of its ordinary shares
At the last annual general meeting of the Company held on 28 October 2011, shareholders gave the Company or any of its subsidiary companies a general authority in terms of Sections 48 of the Companies Act 71 of 2008, by way of special resolution, to acquire or repurchase its own shares. This general authority remains valid until the next annual general meeting, which is to be held on 28 September 2012. Shareholders will be asked at that meeting to consider a special resolution to renew this general authority, which will remain valid until the following annual general meeting.
Ordinary shares of the Company acquired by the Company and subsidiary companies of the Company
The Company has been acquiring its own ordinary shares in terms of various past general authorities granted to the Board at the various past annual general meetings of the Company, the last annual general meeting being held on 28 October 2011 and the last authority being granted on this date.
The dates of acquisition of ordinary shares are set out below:
Transactions by Huge as Buyer/(Seller)
Transaction date Number Average Value of
of shares price per transaction
share (R)
(in cents)
Year ended 29 February 2009 (1) 3 311 546 122.52 4 057 191
Year ended 28 February 2010 (2) (*) (3 311 546) 118.00 (3 907 624)
Year ended 28 February 2011 (3) 6 212 105 85.67 5 321 685
TOTAL 6 212 105 5 471 252
Transactions by Huge as Buyer/(Seller) (4)
Transaction date Number Price per Value of
of shares share Transaction
(in cents) (R)
26 August 2011 401 000 75.00 300 750
30 August 2011 200 000 81.99 163 980
12 December 2011 934 400 51.37 480 000
- Option premium 37.55 350 877
12 December 2011 3 500 000 140.00 4 900 000
12 December 2011 11 100 55.00 6 105
20 December 2011 60 321 69.00 41 621
20 December 2011 101 200 70.00 70 840
20 December 2011 2 000 71.00 1 420
12 January 2012 2 020 66.00 1 333
8 February 2012 90 000 81.00 72 900
8 February 2012 10 000 80.00 8 000
13 February 2012 124 863 83.00 103 636
14 February 2012 30 000 84.00 25 200
16 February 2012 33 460 95.00 31 787
17 February 2012 118 333 100.00 118 333
22 February 2012 40 655 90.00 36 590
TOTAL 5 659 352 6 713 373
Huge Group Limited
33
Directors’ report (continued)
6. Authorised and issued share capital (continued)
* Includes a sale from Huge to Huge Telecom (1) In terms of the general authority granted by shareholders to the directors on 22 September 2008. (2) In terms of the general authority granted by shareholders to the directors on 27 November 2009. (3) In terms of the general authority granted by shareholders to the directors on 1 October 2010. (4) In terms of the general authority granted by shareholders to the directors on 28 October 2011
Transactions by Huge Telecom Buyer/(Seller)
Transaction date Number Average Value of
of shares price per Transaction
share (R)
(in cents)
Year ended 28 February 2009 (1) 2 281 691 147.83 3 372 956
Year ended 28 February 2010 (2) 7 365 235 88.19 6 495 456
Year ended 28 February 2011 (3) - - -
TOTAL 9 646 926 9 868 412
Transactions by Huge Telecom Buyer/(Seller) (4)
Date of issue Number Price per Value of
of shares Share Transaction
(in cents) (R)
12 December 2011 3 500 000 140.00 4 900 000
TOTAL 3 500 000 140.00 4 900 000
7. Derivative contracts acquired by the Group
The Group makes use of derivative contracts, including single stock futures contracts (SSFs) and contracts for difference (CFDs), to acquire exposure over the ordinary shares of the Company in order to reduce the potential price risk associated with the repurchase by the Company, under a specific authority to be requested from shareholders of the Company at an Annual General Meeting, of its own ordinary shares on a future date. The particular SSFs in question are physically-settled SSF contracts.
Huge Group Limited
34
Directors’ report (continued)
7. Derivative contracts acquired by the Group (continued)
SSF contracts acquired by Huge Telecom
One SSF contract provides exposure to 100 underlying reference instruments – in this case, 100 ordinary shares in Huge.
Transaction date Number of Spot price Value of Margin
SSF per Nominal posted/
contracts underlying Exposure (refunded)
acquired/ instrument acquired/
(disposed) Reduced
(in cents) (R) (R)
27 June 2008 1 061 330.58 350 745 350 745
30 June 2008 500 330.00 165 000 165 000
1 July 2008 933 344.00 320 952 320 952
2 July 2008 250 370.00 92 500 92 500
9 September 2008 (2 035) 400.90 (815 832) (815 832)
16 September 2008 613 362.00 221 906 221 906
26 September 2008 800 362.00 289 600 289 600
7 October 2008 1 200 343.00 411 600 411 600
10 October 2008 250 344.00 86 000 86 000
13 October 2008 20 370.00 7 400 7 400
TOTAL 3 592 1 129 871 1 129 871
CFDs acquired by Huge Telecom
A CFD provides exposure to an equivalent number of underlying reference instruments – in this case, one ordinary share in Huge.
Transaction date Number of Spot price Value of Margin
CFDs per nominal posted/
acquired/ underlying exposure (refunded)
(disposed) instrument acquired/
reduced
(in hundreds) (in cents) (R) (R)
10 July 2008 50.00 360.00 18 000 18 000
14 July 2008 60.00 360.00 21 600 21 600
16 July 2008 4.00 360.00 1 440 1 440
17 July 2008 8.00 364.00 2 912 2 912
23 July 2008 2 303.25 362.50 834 930 834 930
24 July 2008 6 204.60 362.75 2 250 705 2 250 705
30 July 2008 638.94 360.00 230 018 230 018
31 July 2008 7 500.00 360.00 2 700 000 2 700 000
1 August 2008 600.00 360.00 216 000 216 000
6 August 2008 69.82 330.00 23 041 23 041
11 August 2008 183.18 330.00 60 449 60 449
20 August 2008 500.00 320.00 160 000 160 000
29 August 2008 1 250.00 343.00 428 750 428 750
30 September 2008 93.00 350.00 32 550 32 550
2 October 2008 3 560.00 360.00 1 281 600 1 281 600
3 October 2008 300.00 356.00 106 800 106 800
6 October 2008 15 721.00 354.00 5 565 234 5 565 234
TOTAL 39 045.79 13 934 029 13 934 029
Huge Group Limited
35
Directors’ report (continued)
7. Derivative contracts acquired by the Group (continued)
SSF contracts acquired by the Company
One SSF contract provides exposure to 100 underlying reference instruments – in this case, 100 ordinary shares in Huge.
Transaction date Number of Spot price Value of Margin
SSF per nominal posted/
contracts underlying exposure (refunded)
acquired/ instrument acquired/
(disposed) reduced
(in cents) (R) (R)
16 October 2008 80 455 362.00 29 124 710 29 124 710
The SSF contracts and CFDs held by Huge and Huge Telecom are fully collateralised by cash, which has been posted as a 100% margin.
8. Borrowing limitations
In terms of the Articles of Association of the Company, the directors may exercise all the powers of the Company to borrow money as they consider appropriate.
9. Non-current assets
During March 2011, the Group commissioned an independent valuation of its land and buildings in Cape Town, known as units 6 and 8 Doncaster Office Park. The valuation was performed by Holgate Property Services, who confirmed the carrying value of the land and buildings at a fair-value of R4 900 000.
Subsequently, during September 2011, the land and buildings situated at units 6 and 8 Doncaster Office Park in Cape Town, were disposed of at the following price: Land and Buildings for R 3 100 000.
10. Goodwill
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 (“Huge Telecom”) 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 Huge Telecom to its clients on the date on which the client commenced utilising Huge Telecom’s telephony services;
- In order to deliver its telephony services to its clients, Huge Telecom adopted a commercial business model called least cost routing (“LCR”). LCR involved the subscription by Huge Telecom, as an ordinary retail customer, for retail mobile packages from the respective MNOs;
- Due to its bulk buying power Huge Telecom 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 Huge Telecom 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 Huge Telecom (“Management”) and the Board started giving due consideration to the medium and long-term sustainability of the business model adopted by Huge Telecom 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 Huge Telecom’s client base’s total needs (“the Service Risk”);
Huge Group Limited
36
Directors’ report (continued)
10. Goodwill (continued)
- 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 Huge Telecom 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 Huge Telecom 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 Huge Telecom; In February 2011 Management concluded such an agreement (“the Wholesale Advantage”);
- In obtaining the Wholesale Advantage, Huge Telecom 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 Huge Telecom (measured in minutes), and at best, equal to five time the existing services provided by Huge Telecom (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 Huge Telecom 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 moving to Telkom (“Upper Segment Churn”), 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 (“Upper Segment Churn”);
- 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 directors of Huge continue to assess the industry and the possible changes that could impact the Goodwill.
11. Dividends
No dividends were declared or paid to shareholders during the year. (2011: Rnil).
12. Intangible assets
The value of the intangible asset, being the Eyeballs software, is based on the asset’s fair-value-less-costs-to-sell as at the date of acquisition of Eyeballs, based on the best information available to the Board to reflect the amount the Company could obtain from the disposal of the intangible asset in an arm’s length transaction between knowledgeable willing parties after deducting the potential costs of a disposal. The directors accelerated the amortisation of the asset (from ten years to five years) to arrive at this value as the carrying amount. Value-in-use was not considered an appropriate basis for valuing this asset for IAS 36 impairment testing purposes, as in the directors’ view, this is not yet a revenue generating asset.
Huge Group Limited
37
Directors’ report (continued)
13. Directors
The directors of the Company during the year and to the date of this report are as follows:
Name Change
Michael Ronald Beamish
James Charles Herbst
Kenneth Delroy Jarvis Resigned 7 June 2012
Brian Alexander McQueen Resigned 28 June 2012
Vincent Mokhele Mokholo
Yvette Neveling Resigned 1 June 2011
Anton Daniel Potgieter
Stephen Peter Tredoux
Neil Brian Wensley Appointed 1 August 2011
Dennis Ronald Gammie Appointed 28 June 2012
14. Directors' personal financial interests
The register of personal financial interests of directors, held in terms of Section 75(4) of the Companies Act, is available to the public on request at the Company's registered address.
15. Interest in subsidiary companies
Name of subsidiary % shareholding
Centracell 100
Huge Telecom 100
Eyeballs 77
Huge Media 100
During the prior financial year, Huge Telecom acquired a 50.2% shareholding in Ambient, a supplier of SMS and data services. It also established, as a 50.3% held subsidiary company, Legacy. Legacy is a supplier of managed telecommunications services. Huge Cellular was sold to Huge Telecom on 6 April 2011.
The attributable interest of the Company in the net profit/(losses) after taxation of each subsidiary company was:
Company
Figures in Rand 2012 2011
CentraCell 8 986 358 (6 851 906)
Huge Telecom (8 907 183) 2 157 749
Huge Cellular (847 707) -
Eyeballs (1 408 252) (6 249 119)
Huge Media (428 218) (6 080 044)
Ambient (325 465) -
Legacy (81 592) -
Huge Group Limited
38
Directors’ report (continued)
16. Directors' interests in the share capital of the Company
As at 29 February 2012, the following directors held shares in the issued share capital of the Company:
2012
Directors' interest in the share capital (number of shares) of the Company
Direct Indirect Total %
James Charles Herbst 151 257 10 057 685 10 208 942 11.31
Anton Daniel Potgieter 6 163 400 3 664 325 9 827 725 10.89
Michael Ronald Beamish 2 711 034 6 284 300 8 995 334 9.97
Vincent Mokhele Mokholo 233 600 2 526 069 2 759 669 3.06
Neil Brian Wensley 360 000 - 360 000 0.40
Stephen Peter Tredoux 146 510 - 146 510 0.16
9 765 801 22 532 379 32 298 180 35.61
Share dealings during the financial year (number of shares)
Bought Sold
Anton Daniel Potgieter 1 000 000 3 500 000
Associate of James Charles Herbst 292 085 -
Neil Brian Wensley * 37 000 -
1 329 085 3 500 000
* Mr NB Wensley, the financial director of the Group, held 323 000 ordinary shares in the issued share capital of the Company prior to his appointment on 1 August 2011.
On 4 August 2011 Mr MR Beamish, a non-executive director of the Company, transferred 6 284 300 ordinary shares in Huge held by him in his own name into a family trust.
Share dealings after the financial year end and up to the date of the approval of these financial statements
Bought Sold
Michael Ronald Beamish – purchase of contracts for
difference 2 202 887 -
Associate of Michael Ronald Beamish 91 849 -
Associate of James Charles Herbst 90 685 -
2 385 421 -
Other than disclosed above, no other directors’ dealings have taken place after the end of the financial year and up to the date of approval of these financial statements.
2011
Directors' interest in the share capital (number of shares) of the Company
Direct Indirect Total %
Michael Ronald Beamish 8 830 334 - 8 830 334 7.90
James Charles Herbst 151 257 9 765 600 9 916 857 8.87
Vincent Mokhele Mokholo 233 600 2 526 069 2 759 669 2.47
Anton Daniel Potgieter 5 163 400 7 164 325 12 327 725 11.03
Stephen Peter Tredoux 146 510 - 146 510 0.13
14 525 101 19 455 994 33 981 095 30.40
Huge Group Limited
39
Directors’ report (continued)
17. Special resolutions
The Company passed the following special resolutions during the current and prior financial years:
Date of special resolution Nature of special resolution
21 December 2009 The granting of a general authority to the directors of the Company, and to the directors of any subsidiary company of the Company, to repurchase ordinary par value shares previously issued by the Company, subject to the Articles of Association of the Company, the Companies Act of South Africa, 1973 as amended, and the restrictions placed on this authority by the JSE.
1 October 2010 The granting of a general authority to the directors of the Company, and to the directors of any subsidiary company of the Company, to repurchase ordinary par value shares previously issued by the Company, subject to the Articles of Association of the Company, the Companies Act of South Africa, 1973 as amended, and the restrictions placed on this authority by the JSE.
28 October 2011 The granting of a general authority to the directors of the Company, and to the directors of any subsidiary company of the Company, to repurchase ordinary par value shares previously issued by the Company, subject to the Articles of Association of the Company, the Companies Act of South Africa, 2008 as amended, and the restrictions placed on this authority by the JSE.
The approval of the non-executive directors’ remuneration scale for the financial year commencing 1 March 2011, in terms of section 69(9) of the Companies Act, 2008 as amended.
The granting of a general approval in terms of section 45 of the Companies Act, 2008 as amended, to the Company and its subsidiary companies to enter into funding agreements, guarantee loans, secure debts or obligations and to provide loans and financial assistance to any one or more of the subsidiary companies of the Company from time to time, subject to the provisions of the JSE Listings Requirements.
No special resolutions were passed by any subsidiary companies during the year.
18. Company Secretary
The secretary of the Company as at year end was Arcay Client Support Proprietary Limited of:
Business address Postal address
Arcay House II PO Box 62397
Number 3 Anerley Road Marshalltown
Parktown 2107
2193
Subsequent to year end, the Company appointed Jean Tyndale-Biscoe as Company Secretary with effect from 1 August 2012, of:
Business address Postal address
3M Building PO Box 16376
1st Floor, East Wing Dowerglen
146a Kelvin Drive 1612
Woodmead
2157
Huge Group Limited
40
Directors’ report (continued)
Declaration by the Company Secretary
In terms of section 88(2) (e) of the Companies Act 71 of 2008, we certify that, to the best of our knowledge and belief, the Company has lodged with the Companies and Intellectual Property Commission (CIPC) for the financial year ended 29 February 2012 all such returns as are required of a public company in terms of the aforesaid Act, and that all such returns are true, correct and up to date.
Arcay Client Support Proprietary Limited
Reg No 1998/025284/07 31 August 2012
Huge Group Limited
41
Directors’ report (continued)
19. Auditors
The external independent auditor of the Company is BDO South Africa Incorporated, who were appointed to office in accordance with Section 90 of the Companies Act 71 of 2008 as amended, of:
Business address Postal address
BDO South Africa Incorporated Private Bag X60500
22 Wellington Road Houghton
Parktown 2041
2193
20. Litigation
Huge Telecom is currently party to the following litigation:
Dispute between MTN Service Provider Proprietary Limited (“MTNSP”) and Huge Telecom
MTNSP 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.
MTNSP’s filed its replying affidavit on 1 July 2011.
The application proceedings were heard on 23 July 2012. The presiding Judge has referred the matter to trial, but the matter has not been set down as yet.
The Group has recognised the assets and the liabilities relating to the MTNSP 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.
Other litigation
The Company and Group engage in a certain level of litigation in the ordinary course of business. The directors have considered all pending and current litigation and are of the opinion that, unless specifically provided, none of these will result in a loss to the Group. All significant litigation which the directors believe will have a possible loss has been disclosed.
Huge Group Limited
42
Directors’ report (continued)
21. Purchase of single stock futures contracts
In terms of a resolution of the Board passed on 11 June 2008, the Board constituted at the time approved the opening of single stock futures (SSF) and contracts-for-difference (CFD) accounts with Watermark Securities Proprietary Limited (“Watermark”) and Nedbank Limited. In terms of a resolution of the Board passed at the Board meeting held on 8 July 2008, the Board constituted at the time resolved to acquire up to 20% exposure to the ordinary par value shares of Huge in issue by making use of cash, SSFs and CFDs.
Single stock futures (SSF) contract purchases – subject of JSE dispute
On 16 October 2008, the single stock futures (SSF) accounts held Anton Daniel Potgieter (“Potgieter”) and Pacific Breeze Trading 417 Proprietary Limited (“Pacific Breeze”), a company previously controlled by James Charles Herbst (“Herbst”), with Watermark were placed in default as a result of an unwillingness to lodge a unilateral and non-contractual request for an increase in initial margins of 250% of the stipulated South African Futures Exchange (SAFEX) margin. Various positions held by Anton Daniel Potgieter and Pacific Breeze were subsequently transferred to a proprietary account of Watermark. On 16 October 2008, Huge acquired the 80 455 SSF contracts previously held by Anton Daniel Potgieter and Pacific Breeze. These transactions are the subject of a dispute with the JSE Limited “(JSE”) wherein the JSE ruled that the transactions constituted a repurchase by the Company of its own shares in terms of the old Companies Act and were also deemed to be transactions with related parties.
Subsequent to the findings of the JSE and the fine of R5 million imposed on each of the alleged related parties, Herbst and Potgieter lodged appeals with the Appeal Board of the Financial Services Board (“FSB”).
On 9 July 2012, in accordance with an order of the Appeal Board of the Financial Services Board (“FSB”), the JSE announced on SENS that Herbst and Potgieter’s appeal had been allowed with costs, that the findings of the JSE that the Company, Herbst and Potgieter had breached section 85 of the Companies Act 81 of 1973 and section 5.69 of the Listings Requirements of the JSE had been set aside, and instead replaced with a finding that the Company, Herbst and Potgieter had breached section 5.69 read in conjunction with section 5.82 of the Listings Requirements.
Huge Group Limited
43
Statements of financial position
as at 29 February 2012
Group Company
Figures in Rand Note 2012 2011 2012 2011
Assets
Non-current assets
Property, plant and equipment 2 33 025 064 38 901 191 - -
Goodwill 3 215 153 482 215 153 482 - -
Intangible assets 4 15 392 170 17 716 060 - -
Investments in subsidiary companies 5 - - 241 099 337 241 099 437
Investment in joint venture 6 562 230 387 558 - -
Investments in associate companies 7 - 1 811 107 - -
Loans to subsidiary companies 8 - - 32 160 714 20 176 301
Investments 9 263 159 305 585 263 159 305 585
Deferred taxation 10 12 258 656 10 511 201 2 437 565 3 268 947
276 654 760 284 786 184 275 960 775 264 850 270
Assets
Current assets
Inventory 11 9 151 439 43 749 852 3 805 052 -
Loans to associate companies 12 199 958 1 779 083 - -
Loans to shareholders 13 - - 292 005 -
Current tax receivable 164 404 1 429 577 - -
Trade and other receivables 14 81 335 887 69 486 863 119 248 1 279 162
Derivative margin deposits 15 7 275 924 8 554 970 2 815 925 3 218 200
Cash and cash equivalents 16 17 373 315 11 933 887 6 530 855 7 458 078
115 500 928 136 934 232 13 563 085 11 955 440
Total assets 392 155 688 421 720 416 289 523 860 276 805 710
Huge Group Limited
44
Statements of financial position (continued)
Group Company
Figures in Rand Note 2012 2011 2012 2011
Equity and liabilities
Equity
Equity attributable to owners of the parent company
Share capital 17 9 024 9 590 9 989 10 555
Share premium 17 214 395 559 221 108 366 224 543 364 231 256 172
Reserves 18 (1 074 562) 28 888 (1 074 562) (701 754)
Retained earnings/(accumulated loss) 10 498 923 14 330 089 6 513 145 (7 035 587)
223 828 944 235 476 933 229 991 936 223 529 386
Non-controlling interest 19 (1 121 496) (1 272 805) - -
222 707 448 234 204 128 229 991 936 223 529 386
Liabilities
Non-current liabilities
Finance lease obligations 20 445 550 439 094 - -
Deferred taxation 10 1 798 081 2 385 861 - -
Investment in associate 7 736 461 220 000 - -
2 980 092 3 044 955 - -
Current liabilities
Loans from subsidiary companies 8 - - 51 086 755 42 542 312
Loans from associate companies 12 - 1 212 057 - -
Loans from shareholders 13 2 851 384 828 758 - 654 951
Other financial liabilities 21 2 698 982 1 457 025 - -
Current tax payable 36 484 327 121 - -
Finance lease obligations 20 294 020 3 674 139 - -
Trade and other payables 22 143 225 971 155 001 410 8 445 169 10 064 109
Shareholders for dividends - 14 952 - 14 952
Bank overdraft 16 17 361 308 21 955 871 - -
166 468 148 184 471 333 59 531 924 53 276 324
Total liabilities 169 448 240 187 516 288 59 531 9124 53 276 324
Total equity and liabilities 392 155 688 421 720 416 289 523 860 276 805 710
Huge Group Limited
45
Income statements
As at 29 February 2012
Group Company
Figures in Rand Note 2012 2011 2012 2011
Revenue 23 388 854 143 523 771 553 20 589 377 -
Cost of sales 24 (314 182 808) (434 103 805) (20 589 377) -
Gross profit 74 671 335 89 667 748 - -
Other income 25 4 253 833 1 200 715 15 087 649 3 396
Operating expenses
- Administration expenses (16 749 554) (23 151 332) (3 771 186) (16 012 387)
- Employee costs (51 504 549) (62 986 425) - -
- Selling and distribution expenses (12 795 439) (27 964 716) - -
- Other expenses (849 279) (661 043) - -
Operating (loss)/profit 26 (2 973 653) (23 895 053) 11 316 463 (16 008 991)
Investment income 27 1 452 827 3 733 896 4 814 726 5 737 478
Net change in fair- value of financial instruments 28 (2 662 602) 5 126 817 (1 712 109) 3 113 609
(Loss)/income from equity accounted investments 29 61 733 (952 298) - -
Finance costs 30 (2 501 843) (2 999 875) (38 964) (1 309 858)
(Loss)/profit before income tax (6 623 538) (18 986 513) 14 380 116 (8 467 762)
Income tax credit/(expense) 31 2 213 040 2 111 745 (831 382) 448 710
(Loss)/profit for the year (4 410 498) (16 874 768) 13 548 734 (8 019 052)
(Loss)/profit for the year attributable to:
Owners of the company (4 561 808) (14 976 812) 13 548 734 (8 019 052)
Non-controlling interest 151 309 (1 897 956) - -
(4 410 498) (16 874 768) 13 548 734 (8 019 052)
Earnings per share:
Basic (loss)/earnings per share 32 (4.82) (15.33) - -
Diluted basic (loss)/earnings per share 32 (4.82) (15.33) - -
Huge Group Limited
46
Statements of comprehensive income
As at 29 February 2012
Group Company
Figures in Rand Note 2012 2011 2012 2011
(Loss)/profit for the year (4 410 498) (16 874 768) 13 548 734 (8 019 052)
Other comprehensive income
(Loss)/gain on property revaluation - (624 999) - -
Taxation related to components of other comprehensive
Income - 140 603 - -
Other comprehensive (loss)/income for the year net
of taxation 35 - (484 396) - -
Total comprehensive (loss)/income for the year (4 410 498) (17 359 164) 13 548 734 (8 019 052)
Total comprehensive (loss) income for the year
attributable to:
Owners of the company (4 561 808) (15 461 208) 13 548 734 (8 019 052)
Non-controlling interest 151 309 (1 897 956) - -
Total comprehensive (loss)/profit for the year (4 410 498) (17 359 164) 13 548 734 (8 019 052)
Huge Group Limited
47
Statements of changes in equity – Group for the year ended 29 February 2012 Share Share Total share Revaluation Share option Total Retained Total Non- Total
capital premium capital reserve reserve reserves earnings/ attributable t
controlling equity
(accumulated equity h ld
interest
loss) of the Group/
Figures in Rand Company
Balance at 28 February 2010 10 211 226 429 430 226 439 641 555 646 659 392 1 215 038 29 306 901 256 961 580 721 499 257 683 079
Total comprehensive income
for the year
Loss for the year - - - - - - (14 976 812) (14 976 812) (1 897 956) (16 874 768)
Other comprehensive loss - - - (484 396) - (484 396) - (484 396) - (484 396)
Changes in equity
Purchase of treasury shares (621) (5 321 064) (5 321 685) - - - - (5 321 685) - (5 321 685)
First Tranche – Directors Call Options
- - - - (701 754) (701 754) - (701 754) - (701 754)
Acquisition of subsidiary - - - - - - - - (96 348) (96 348)
Total changes (621) (5 321 064) (5 321 685) (484 396) (701 754) (1 186 150) (14 976 812) (21 484 647) (1 994 304) (23 478 951)
Balance at 28 February 2011 9 590 221 108 366 221 117 956 71 250 (42 362) 28 888 14 330 089 235 476 933 (1 272 805) 234 204 128
Huge Group Limited
48
Statements of changes in equity – Group (continued) for the year ended 29 February 2012 Share Share Total share Revaluation Share option Total Retained Total Non- Total
capital premium capital reserve Reserve reserves earnings/ attributable t
controlling equity
(accumulated equity h ld
interest
loss) of the Group/
Figures in Rand Company
Balance at 28 February 2011 9 590 221 108 366 221 117 956 71 250 (42 362) 28 888 14 330 089 235 476 933 (1 272 805) 234 204 128
Total comprehensive income
for the year
Loss for the year - - - - - - (4 561 808) (4 561 808) 151 309 (4 410 498)
Realisation after sale of PPE - - - (71 250) - (71 250) 71 250 - - -
Changes in equity
Purchase of treasury shares (566) (6 712 808) (6 713 374) - - - - (6 713 374) - (6 713 374)
First Tranche – Directors Call Options
- - - - 350 877 350 877 - 350 877 - 350 877
Second Tranche – Directors Call Options
- - - - (723 685) (723 685) - (723 685) - (723 685)
Lapsing of options in Eyeballs - - - - (659 392) (659 392) 659 392 - - -
Total changes (566) (6 712 808) (6 713 374) (71 250) (1 032 200) (1 103 450) (3 831 166) (11 647 989) 151 309 (11 496 679)
Balance at 29 February 2012 9 024 214 395 558 214 404 582 - (1 074 562) (1 074 562) 10 498 924 223 828 944 (1 121 496) 222 707 448
Note 17 17 18 and 35 18
Huge Group Limited
49
Statements of changes in equity – Company for the year ended 29 February 2012 Share Share Total share Revaluation Share option Total Retained Total
capital premium capital reserve reserve reserves earnings/ attributable t (accumulated equity
h ld loss) of the Group/
Figures in Rand Company
Balance at 28 February 2010 11 176 236 577 236 236 588 412 - - - 983 465 237 571 877
Total comprehensive income
for the year
Loss for the year - - - - - - (8 019 052) (8 019 052)
Other comprehensive loss - - - - - - - -
Changes in equity
Purchase of treasury shares (621) (5 321 064) (5 321 685) - - - - (5 321 685)
First Tranche – Directors Call Options
- - - - (701 754) (701 754) - (701 754)
Acquisition of subsidiary companies
- - - - - - - -
Total changes (621) (5 321 064) (5 321 685) - (701 754) (701 754) (8 019 052) (14 042 491)
Balance at 28 February 2011 10 555 231 256 172 231 266 727 - (701 754) (701 754) (7 035 587) 223 529 386
Huge Group Limited
50
Statements of changes in equity – Company (continued) for the year ended 29 February 2012 Share Share Total share Revaluation Share option Total Retained Total
capital premium capital reserve reserve reserves earnings/ attributable t (accumulated equity
h ld loss) of the Group/
Figures in Rand Company
Balance at 28 February 2011 10 555 231 256 172 231 266 727 - (701 754) (701 754) (7 035 587) 223 529 386
Total comprehensive income
for the year
Profit for the year - - - - - - 13 548 734 13 548 734
Other comprehensive loss - - - - - - - -
Changes in equity
Purchase of treasury shares (566) (6 712 808) (6 713 375) - - - - (6 713 375)
First tranche – Directors ‘Call
Options - - - - 350 877 350 877 - 350 877
Second tranche – Directors’ Call
Options - - - - (723 685) (723 685) - (723 685)
Total changes (566) (6 712 808) (6 713 375) - (372 807) (372 807) 13 548 734 6 462 552
Balance at 29 February 2012 9 989 224 543 364 224 543 352 - (1 074 561) (1 074 561) 6 513 147 229 991 936
Note 17 17 18 and 35 18
Huge Group Limited
51
Statements of cash flows
for the year ended 29 February 2012
Group Company
Figures in Rand Note 2012 2011 2012 2011
Cash flows from operating activities
Cash receipts from customers 377 005 119 514 024 478 19 429 463 -
Cash paid to suppliers and employees (362 261 680) (513 395 561) (11 947 332) (3 008 716)
Cash generated from/(utilised in) operations 36 14 743 439 628 917 7 482 130 (3 008 716)
Interest income 27 1 271 948 1 073 896 4 808 848 5 737 478
Dividends received 27 180 879 2 660 000 5 879 -
Finance costs 30 (2 501 843) (2 999 875) (38 964) (1 309 858)
Taxation refunded/(paid) 37 925 536 973 790 - 982 888
Movement in derivative margin 28 (2 662 602) 5 126 817 (1 712 109) 3 113 609
Net cash inflow/(outflow) from operating activities 11 957 357 7 463 545 10 545 784 5 515 401
Cash flows from investing activities
Purchase of property, plant and equipment to
maintain operations 2 (2 137 721) (2 651 864) - -
Proceeds from sale of property, plant and equipment 2 3 658 947 230 255 - -
Purchase of intangible assets 4 (1 516 400) (4 872 277) - -
Loans to Group companies 1 579 125 (141 605) (11 984 413) (6 716 784)
Loans from Group companies (1 212 057) (996 251) 8 544 443 20 563 260
Acquisition of subsidiary companies 44 - (653) - -
Proceeds from sale of investments 4 900 000 87 220 100 87 220
Net cash (outflow)/inflow from investing activities 5 271 894 (8 345 175) (3 439 870) 13 933 696
Cash flows from financing activities
Reduction of share capital or buy back of shares 17 (6 713 373) (5 321 685) (6 713 373) (5 321 685)
Repayment of shareholders’ loans - (8 318 933) (946 956) (8 201 975)
Proceeds of shareholders’ loans 2 196 433 - - -
Finance lease payments (3 373 662) (5 258 000) - -
Repayment of other financial liabilities 1 068 150 (975 422) - (1 800 000)
First Tranche – Directors Call Options 350 877 - 350 877 -
Second Tranche – Directors Call Options (723 685) (701 754) (723 685) (701 754)
Net cash (outflow)/inflow from financing activities (7 195 260) (20 575 794) (8 033 137) (16 025 414)
(Decrease)/increase in cash and cash equivalents 10 033 991 (21 457 424) (927 223) 3 423 683
Cash and cash equivalents acquired 44 - 5 169 - -
Cash and cash equivalents at beginning of the year (10 021 984) 11 430 271 7 458 078 4 034 395
(Overdraft)/cash and cash equivalents at end of the
year 16 12 007 (10 021 984) 6 530 855 7 458 078
Huge Group Limited
52
Notes to the annual financial statements
Accounting policies
1. Presentation of the Group annual financial statements and annual financial statements
The Group annual financial statements and annual financial statements have been prepared in accordance with International Financial Reporting Standards, its interpretations adopted by the International Accounting Standards Board, the AC500 series as issued by the Accounting Practices Board of SAICA and in the manner required by the Companies Act 71 of 2008, as amended. The Group annual financial statements and annual financial statements have been prepared on the historical cost basis, except for certain items of property, plant and equipment carried at re-valued amounts, and certain financial instruments carried at fair-value, and incorporate the principal accounting policies set out below. The Group annual financial statements and annual financial statements are presented in South African Rands, which is the functional currency of the Company. The accounting policies are consistent with those of the previous year, and are applied consistently across the Group.
1.1. Consolidation
Basis of consolidation
These financial statements incorporate the financial statements of the Company, all of its subsidiary companies, equity-accounted associate companies, and a joint venture company. The consolidated financial statements present the results of the Company and its subsidiary companies (“the Group”) as if they formed a single entity. Intercompany transactions and balances between Group companies are therefore eliminated in full. The Company carries in its separate financial statements its investments in subsidiary companies at cost less impairment, if any.
Subsidiary companies
Subsidiary companies are entities controlled by the Company. The annual financial statements of the subsidiary companies are included in the Group annual financial statements from the date of effective control until the date that control ceases.
The accounting policies of the subsidiary companies have been changed where necessary to align them with the accounting policies adopted by the Company. Losses applicable to non-controlling interests in a subsidiary company are allocated to the non-controlling interests, even if doing so causes the non-controlling interests to have a deficit balance. Investments in subsidiary companies are carried at cost less accumulated impairment losses in the separate financial statements of the Company.
Acquisitions between 1 March 2004 and 1 March 2010:
For acquisitions that took effect between 1 March 2004 and 1 March 2010, the goodwill of the Group represents the excess of the cost of the acquisition over the Company's interest in the recorded amount (generally the fair-value) of the identifiable assets, liabilities and contingent liabilities of the acquiree. When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss. Transaction costs, other than those associated with the issue of debt or equity securities incurred by the Company in connection with business combinations, are capitalised as part of the acquisition.
An adjustment to the cost of a business combination that is contingent on future events is included in the cost of the combination if the adjustment is probable and can be measured reliably.
Joint venture companies
The Company’s interest in its joint venture is accounted for using the equity method of accounting, whereby the interest in the jointly controlled entity is initially recorded at the cost of the investment, including transaction costs, and is adjusted thereafter for post-acquisition changes in the Company’s share of net assets of the joint venture. The income statement reflects the Company’s share of the results of operations of the joint venture.
Associate companies
Associate companies are all entities over which the Company has significant influence, but not control, and generally accompanies a shareholding of between 20% and 50%, or the holding of between 20% and 50% of the voting rights. Investments in associate companies are accounted for using the equity method of accounting, and are initially recognised at cost. The Group’s investment in associate companies includes goodwill (net of any accumulated impairment), and includes transaction costs identified on acquisition.
The Group’s share of its associate company's post-acquisition profits or losses is recognised in the income statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate company, including any other unsecured receivables, the Group does not recognise further losses unless it has incurred obligations or made payment on behalf of the associate company.
Huge Group Limited
53
Accounting policies (continued)
Unrealised gains on transactions between the Group and its associate companies are eliminated to the extent of the Group’s interest in the associate company. Unrealised losses are eliminated to the extent of the Group’s interest in the associate company unless the transaction provides evidence of an impairment of the asset that has been transferred. Accounting policies of associate companies have been changed where necessary to ensure consistency with the policies adopted by the Group.
When the Group reduces its level of influence or loses significant influence, the Group proportionately reclassifies the related items, which were previously accumulated in equity through other comprehensive income, to profit or loss as a reclassification adjustment. In such cases, if an investment remains, that investment is measured to fair-value, with the fair-value adjustment being recognised in profit or loss as part of the gain or loss on disposal.
Details of consolidations
A listing of the Company’s principal subsidiary companies, associate companies and joint venture is set out in notes 5, 6 and 7 of these financial statements.
Business combinations
Business combinations are accounted for using the acquisition method. The acquisition method involves the recognition of the acquirer’s identifiable assets and liabilities, including contingent liabilities, regardless of whether they were recorded in the financial statements prior to acquisition. The cost of the business combination is measured as the aggregate of the fair-values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquired. The results of the acquired operations are included in the consolidated income statement from the date on which control is obtained.
Any contingent consideration payable is recognised at fair-value at the date of acquisition. If the contingent consideration is classified as equity, it is not re-measured and the settlement consideration is accounted within equity. Subsequent changes to the fair-value of the contingent consideration are recognised in profit or loss.
Goodwill
Goodwill arising on acquisition represents the excess of the cost of a business combination plus non-controlling interest over the fair- value of identifiable assets, liabilities and contingent liabilities acquired. Goodwill is capitalised as an intangible asset with any impairment in carrying-value being charged to profit or loss. Where the fair-value of identifiable assets, liabilities and contingent liabilities exceeds the fair-value of consideration paid, the excess is credited in full to profit or loss. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment bi-annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata to the carrying-amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.
On disposal of a subsidiary company or a jointly controlled entity, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
Acquisitions that took effect on or after 1 March 2010:
For acquisitions that took effect on or after 1 March 2010, the Group measures goodwill at the acquisition date as:
the fair-value of the consideration transferred; plus
the recognised amount of any non-controlling interest in the acquiree; if the business combination is achieved in stages, the fair-value of the existing equity interest in the acquiree; less
the net recognised amount (generally fair-value) of the identifiable assets acquired, liabilities and contingent liabilities assumed.
When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.
Huge Group Limited
54
Accounting policies (continued)
1.2. Significant judgements and sources of estimation uncertainty
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period based on management’s best knowledge of current events and actions. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.
Areas involving a high degree of judgement or complexity, or areas where assumptions and estimates are significant to the Company and Group annual financial statements are:
Determination of impairment of goodwill
The Group determines annually whether goodwill has been subject to impairment. This requires an estimation of the value-in-use of the cash-generating units to which goodwill is allocated. Estimating the value-in-use requires the Group to make an estimate of the expected future cash flows from the cash-generating units and also to choose a suitable discount rate in order to calculate the present value of those cash flows. Goodwill impairments cannot be reversed. Based on the calculations performed, there are no indications that an impairment of goodwill is required at year end. Refer to note 10 of the directors' report.
Allowance for slow moving, damaged and obsolete inventory
In prior periods, an allowance was raised for the impairment of inventory raised on airtime that is deemed likely to expire before being used. The impairment allowance was based on historic usage, airtime expiry dates, and management's judgement of the future usage that was expected. During the period being reported upon, no allowance was made for the impairment of airtime as airtime is bought just-in-time without breakage on subscriptions.
Impairment of trade receivables
An allowance is raised for the impairment of trade receivables that are deemed to exhibit collection risk. The impairment allowance is based on an assessment of the extent to which specific customers have defaulted on payments already due and an assessment of their ability to make payments based on their current financial position. The actual write-off of amounts owing may vary significantly from the impairment allowance depending on any changes in customers’ financial condition.
Taxation
Management’s judgement is exercised when determining the probability of future taxable profits, which will determine whether deferred tax assets should be recognised or de-recognised. The utilisation of deferred tax assets will depend on whether it is possible to generate sufficient taxable income to utilise the taxable loss. When deciding whether to recognise unutilised taxation credits as a deferred tax asset, management determines the extent to which future taxable income is likely to be earned and be available for future set-off. Estimates of future taxable income are based on forecast cash flows from operations and the application of existing tax laws in each jurisdiction. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the Company to realise the net deferred tax assets recorded at the reporting date could be impacted. In the event that the assessment of future payments and future utilisation changes the change is recognised in the income statement as a prior year under or over provision.
Deferred tax is provided for on the fair-value adjustments to land and buildings, based on the expected manner of recovery, namely sale or use. This manner of recovery affects the rate used to determine the deferred tax liability.
Judgement is required in determining the provision for income taxes due to the complexity of legislation. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Company recognises liabilities for anticipated tax based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax liabilities in the period in which such determination is made.
Huge Group Limited
55
Accounting policies (continued)
1.2 Significant judgements and sources of estimation uncertainty (continued)
Property, plant and equipment
The useful lives of property, plant and equipment are based on management's estimate. Management considers the impact of changes in technology and customer service requirements, expected physical wear and tear, expected usage of the asset and any legal or similar limits on the use of the asset to determine the period over which an item of property, plant and equipment is expected to be available for use by the Company. The estimation of residual values of assets is also based on management’s judgement as to whether the assets will be sold, the costs of such disposal and what the expected condition of these assets is likely to be at the time of their disposal.
The revaluation of land and buildings is based on independent third party valuations.
Determination of impairment of property, plant and equipment
Management is required to make judgements concerning the cause, timing and amount of impairment of such assets. In the identification of impairment indicators, management considers the impact of changes in current market conditions, technological obsolescence, physical damage, cost of capital and other circumstances that could indicate that impairment exists. Management’s judgement is also required when assessing whether a previously recognised impairment loss should be reversed.
Where impairment indicators exist, determination of the recoverable amount requires management to make assumptions to determine the fair-value-less-costs-to-sell and value-in-use. Fair-value-less-costs-to-sell is based on the best information available to management that reflects the amount that the Group could obtain, at the statement of financial position date, from the disposal of the asset in an arm’s-length transaction between knowledgeable, willing parties after deducting the costs of disposal, such as stamp duties, legal costs or the costs of removing the asset. Key assumptions on which management has based its determination of value-in-use include projected revenues, gross margins, capital expenditure, expected customer bases and market share.
Router equipment useful life
Management recently considered the future useful life of its router equipment, by assessing the current effective lives of routing equipment still used and in operation at clients, and based on this assessment determined that the useful life of router equipment is greater than six years and more likely longer than 10 years. On the basis of this change in estimate the expected future useful life of an item of router equipment was increased to 10 years, which resulted in a concomitant reduction in the depreciation charge for the current financial year.
Determination of impairment of intangible assets
Management is required to make judgements concerning the cause, timing and amount of impairment of such assets. In the identification of impairment indicators, management considers the impact of changes in current market conditions, technological obsolescence, physical damage, cost of capital and other circumstances that could indicate that impairment exists. Management’s judgement is also required when assessing whether a previously recognised impairment loss should be reversed.
Where impairment indicators exist, determination of the recoverable amount requires management to make assumptions to determine the fair-value-less-costs-to-sell and value-in-use. Fair-value-less-costs-to-sell is based on the best information available to management that reflects the amount that the Group could obtain, at the statement of financial position date, from the disposal of the asset in an arm’s-length transaction between knowledgeable, willing parties, after deducting the costs of disposal, such as stamp duties, legal costs or the costs of removing the asset. Key assumptions on which management has based its determination of value-in-use include projected revenues, gross margins, capital expenditure, expected customer bases and market share.
Eyeballs Technology Carrying Value
The value of the intangible asset of Eyeballs Mobile Advertising Proprietary Limited is based on the asset’s fair-value-less-costs-to-sell based on the best information available to the directors to reflect the amount the Company could obtain from the disposal of the intangible asset in an arm’s-length transaction between knowledgeable, willing parties after deducting the potential costs of a disposal. The directors have accelerated the amortisation of the asset to arrive at the carrying amount. Refer note 4.
Eyeballs Technology useful life
During the previous financial year, the expected future useful life of the Eyeballs technology was reduced from 10 years to 5 years, which resulted in a concomitant increase in amortisation for the previous financial year. Management reconsidered the position during the current financial year, and resolved to leave the useful life of the technology at 5 years.
Huge Group Limited
56
Accounting policies (continued)
1.2 Significant judgements and sources of estimation uncertainty (continued)
Determination of impairment of investment in associate companies and joint-venture company
Management is required to make judgements concerning the cause, timing and amount of impairment of such assets. In the identification of impairment indicators, management considers the impact of changes in current market conditions affecting the value of the investment. Consideration also needs to be given to the underlying sustainability and growth of the business conducted by the associate and joint venture company, which may give an indication of whether or not impairment in the value of the investment is required. Management’s judgement is also required when assessing whether a previously recognised impairment should be reversed.
Where impairment indicators exist, determination of the recoverable amount requires management to make assumptions to determine the fair-value-less-costs-to-sell and value-in-use. Fair-value-less-costs-to-sell is based on the best information available to management that reflects the amount that the Group could obtain, at the statement of financial position date, from the disposal of the asset in an arm’s-length transaction between knowledgeable, willing parties after deducting the costs of disposal, such as stamp duties, and legal costs. Key assumptions on which management has based its determination of value-in-use include projected revenues, gross margins, capital expenditure, expected customer bases and market share.
Determination of liability, trade receivable and inventory subject to dispute
The trade payables, trade receivables and inventory relating to the dispute between MTN Service Provider Proprietary Limited and Huge Telecom and CentraCell are reflected separately in these financial statements in notes 12 and 13 respectively. The carrying amounts of these assets and liabilities may differ materially within the next financial year depending on the outcome of the dispute.
1.3. Foreign currencies
Functional and presentation currency
Items included in these financial statements are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The financial statements are presented in Rand, which is the Company’s functional currency.
Transactions and balances
Foreign currency transactions are measured at the exchange rate ruling on the transaction date. Foreign monetary currency assets and liabilities are brought into account at the rates of exchange ruling at the financial year-end.
1.4. Property, plant and equipment
Items of property, plant and equipment are initially measured at cost, being the purchased cost plus any cost to prepare the assets for their intended use. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, where appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.
Items of property, plant and equipment (excluding land and buildings) are subsequently carried at cost less accumulated depreciation and any accumulated impairment. Items of property, plant and equipment, with the exception of land, are depreciated on the straight-line basis over each asset’s estimated useful life to their estimated residual value. Land is not depreciated as it is deemed to have an indefinite life. When parts of items of property, plant or equipment have different useful lives they are accounted as separate items (major components) of property, plant and equipment.
When land and buildings are re-valued any accumulated depreciation at the date of the revaluation is eliminated against the gross carrying amount of the asset and the net amount restated to the re-valued amount of the asset. Any increase in an asset’s carrying amount as a result of a revaluation is recognised in other comprehensive income and accumulated in the revaluation surplus in equity. The increase is recognised in profit or loss to the extent that it reverses a revaluation decrease of the same asset previously recognised in profit or loss.
Any decrease in an asset’s carrying amount as a result of a revaluation is recognised in profit or loss, except to the extent of any credit balance existing in the revaluation surplus in respect of that asset. The resultant decrease recognised in other comprehensive income reduces the amount accumulated in the revaluation surplus in equity.
Huge Group Limited
57
Accounting policies (continued)
1.4 Property, plant and equipment (continued)
The revaluation surplus in equity related to a specific item of property, plant and equipment is transferred directly to retained earnings when the asset is de-recognised and is regarded as a distributable reserve. Leasehold improvements and other assets capitalised under finance leases are depreciated over the shorter of the useful life of the asset, or the lease term, to residual value.
The useful lives of items of property, plant and equipment have been assessed as follows:
Item Average useful life
Buildings 20 years
Leasehold improvements Period of lease
Furniture and fixtures 6 years
Motor vehicles 4 years
Office equipment 3 years
IT equipment 3 years
IT equipment - Server equipment 5 years
Router equipment 10 years
The residual value, useful life and depreciation method of each asset is reviewed at the end of each reporting period. If the expectations differ from previous estimates the change is accounted prospectively.
The depreciation charge for each period is recognised in profit or loss unless it is included in the carrying amount of another asset.
An item of property, plant and equipment is de-recognised upon disposal or when no future economic benefits are expected from its use or disposal. The gain or loss that arises from de-recognition of an item of property, plant and equipment is included in profit or loss when the item is de-recognised. The gain or loss arising from de-recognition of an item of property, plant and equipment is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item.
1.5. Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is the fair-value as at the date of acquisition. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is charged to the income statement in the year in which the cost is incurred. The development costs that are capitalised are tested for impairment when there are indicators of impairment.
The useful lives of intangible assets are assessed to be either finite or indefinite.
Intangible assets with finite useful lives are amortised over their useful life and assessed for impairment whenever there is an indication that the intangible asset may be impaired.
The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year-end. The amortisation expense on intangible assets with finite lives is recognised in the income statement in the expense category consistent with the function of the intangible asset.
Research and development cost
An intangible asset arising from development (or from the development phase of an internal project) is recognised when:
it is technically feasible to complete the asset so that it will be available for use or sale;
there is an intention to complete and use or sell the intangible asset;
there is an ability to use or sell the intangible asset;
the intangible asset will generate probable future economic benefits;
there is available technical, financial and other resources to complete the development and to use or sell the intangible asset;
the expenditure attributable to the intangible asset during its development can be measured reliably.
Huge Group Limited
58
Accounting policies (continued)
1.5 Intangible assets (continued)
Research expenditure is recognised in profit or loss as incurred. Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as a profit or loss are not recognised as an asset in a subsequent period. Direct costs include product development, employee costs, and an appropriate portion of relevant overheads. Costs associated with the maintenance of existing products and expenditure or the concept and design of possible new or improved products are written off in the year in which they are incurred.
Following the initial recognition of the development expenditure, the cost model is applied requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment. Amortisation of the asset begins when development is complete and the asset is available for use. It is amortised over the period of expected future benefits. During the period of development, the asset is tested for impairment annually. Impairment tests are carried out on intangible assets that are not yet available for use annually or more frequently when an indication of impairment arises during the reporting year.
Gains or losses arising from de-recognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying-value of the asset and are recognised in the income statement when the asset is de-recognised.
Trademarks
Trademarks are initially recognised at cost. Trademarks have a finite useful life and are subsequently carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of a trademark over its estimated useful life of 5 years.
Subsequent expenditure
Subsequent expenditure is capitalised only when it increases economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed when incurred.
Amortisation of intangible assets is calculated using the straight-line method to allocate the cost over the estimated useful life as follows:
Item Average useful life
Patents and other rights 20 years from date of first granting of
patent
Computer software, internally generated 3-5 years
Computer software, purchased 3 years
Customer base 2 years
Eyeballs technology 5 years
Trademarks 5 years
The patents are currently in a pending status and remain so for so long as the annual renewal fee is paid. Once the patent has been granted, it is valid for twenty years from the date of first grant.
1.6. Financial instruments
The Group classifies financial assets and financial liabilities into the following categories:
Description of asset/liability Classification
Investments Fair-value through profit and loss
Trade and other receivables Loans and receivables
Loans receivable Loans and receivables
Cash and cash equivalents Loans and receivables
Trade and other payables Other liabilities at amortised cost
Derivatives Fair-value through profit and loss
Other financial liabilities Other liabilities at amortised cost
Loans payable Other liabilities at amortised cost
Initial recognition and measurement
The Group classifies financial instruments or their component parts on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement.
Huge Group Limited
59
Accounting policies (continued)
1.6 Financial instruments (continued)
Financial instruments recognised on the statement of financial position include investments in shares, trade and other receivables, loans receivable, cash and cash equivalents, non-current and current liabilities, and trade and other payables. All financial instruments are initially measured at fair-value plus, in case of financial assets/liabilities not at fair-value through profit or loss, transaction costs which are included in the initial measurement of the instrument.
The Group initially recognises debt securities issued and subordinated liabilities on the date that they are originated. All other financial assets and financial liabilities (including liabilities designated at fair-value through profit or loss) are recognised initially on the trade date, which is the date that the Group becomes a party to the contractual provisions of the instrument.
Fair-value estimation
The best evidence of fair-value on initial recognition is the transaction price, unless the fair-value is evidenced by comparison with other observable current market transactions of the same instrument or based on discounted cash flow models and option pricing valuation techniques whose variables include only data from observable markets. Subsequent to initial recognition, the fair-values of quoted financial assets are based on current bid prices. If the market for a financial asset is not active (as for unlisted securities), the Group establishes fair-value by using valuation techniques. These include the use of recent arm's length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis and option-pricing models refined to reflect the issuer's specific circumstances.
Financial instruments designated as available-for-sale
Investments in the shares of the holding company held by subsidiary companies are categorised as available-for-sale financial assets in the subsidiary company's separate financial statements. Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale, or are not classified in any of the other categories. After initial recognition available-for-sale financial assets are measured at fair-value with gains and losses being recognised in the statement of comprehensive income. When the investment is de-recognised the cumulative gain or loss in other comprehensive income is transferred to the income statement. Investments in the shares of the holding company are reflected as treasury shares in the consolidated annual financial statements.
Trade and other receivables and loans receivable
Trade and other receivables and loans receivable are categorised as loans and receivables. These include loans to the holding company, fellow subsidiary companies, subsidiary companies, joint venture companies and associate companies. Subsequently these loans are measured at amortised cost using the effective interest method, less any impairment recognised to reflect irrecoverable amounts. These instruments are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.
Cash and cash equivalents
Cash and cash equivalents are categorised as loans and receivables and are measured at amortised cost, using the effective interest method.
Cash and cash equivalents comprise cash on hand together with other short-term highly liquid investments that are readily convertible into known amounts of cash, and which are subject to an insignificant risk of changes in value.
Derivatives and investments
Derivatives are recognised initially at fair-value on the date on which the derivative contract is concluded, and are subsequently re-measured at fair-value.
Derivatives over the equity instruments of the Company and investments in shares are classified as held-for-trading-through-profit-and-loss. If the contracts expire and the Company takes delivery of these equity instruments, the derivative contracts will be reclassified as equity.
Variation margin call payments are set-off against derivative liabilities as the Company has fully funded the derivative liability and no longer has access to, or control over, the variation margin call account.
Trade payables, loans payable and other financial liabilities
Such financial liabilities include trade and other payables, loans and other payables, and bank overdrafts. These financial liabilities are recognised initially at fair-value plus any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest method.
Huge Group Limited
60
Accounting policies (continued)
1.6 Financial instruments (continued)
Offsetting
Financial assets and financial liabilities are set-off against each other and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to set off the amounts and intends to settle on a net basis to realise the asset and settle the liability simultaneously.
Loans payable and other financial liabilities are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date.
De-recognition
De-recognition of financial instruments occurs when the Group no longer controls the contractual rights relating to the financial instrument in question, which is normally the case when the instrument is sold, or all the cash flows attributable to the instrument are passed through to an independent third party.
The Group de-recognises a financial liability when its contractual obligations are extinguished, cancelled or expire.
All financial assets except for those held at fair-value-through-profit-or-loss are subject to review for impairment at least at each reporting date. Financial assets are impaired when there is objective evidence that a financial asset or a group of financial assets is impaired.
Different criteria to determine impairment are applied for each category of financial assets, which are described below in note 11.
Profit or loss
All income and expenses relating to financial assets that are recognised in profit or loss are presented as part of finance costs, finance income or financial items, with the exception of the impairment of trade receivables which is presented within other expenses.
1.7. Income Taxation
The income tax expense recognised in profit or loss comprises the sum of deferred taxation and current taxation not recognised in other comprehensive income or directly in equity.
Current taxation
Current taxation is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Current tax payable also includes any tax liability arising from the declaration of dividends.
Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from, or paid to, the taxation authorities.
Current income tax relating to items recognised directly in equity is recognised in equity and not in the income statement.
Deferred taxation
A deferred tax liability is recognised for all taxable temporary differences, except to the extent that the deferred tax liability arises from the initial recognition of an asset or liability in a transaction which at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss). A deferred tax asset is recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised. A deferred tax asset is not recognised when it arises from the initial recognition of an asset or liability in a transaction at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss). A deferred tax asset is recognised for the carry forward of unused tax losses and unused STC credits to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused STC credits can be utilised.
Deferred taxation assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. The amount of deferred taxation provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities.
Huge Group Limited
61
Accounting policies (continued)
1.7 Income Taxation (continued)
Deferred taxation for the period is recognised in profit or loss except to the extent that it relates to a transaction that is recognised directly in equity, or forms part of a business combination. The effect on deferred taxation of any changes in the tax rates is recognised in profit or loss, except to the extent that it relates to items previously charged or credited directly to equity. Deferred income tax assets and deferred income tax liabilities are offset if a legally enforceable right exists to set-off income tax assets against income tax liabilities and provided the deferred income taxes relate to the same taxable entity and the same taxation authority.
A deferred income tax asset relating to deductible temporary timing differences is recognised for all deductible differences to the extent that it is probable that future taxable profits will be available against which the associated unused tax losses and deductible temporary timing differences can be utilised. The carrying amount of deferred taxation assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Deferred taxation is provided for on temporary differences between carrying values and the tax base.
Secondary tax on companies (STC)
South African companies are subject to a dual corporate tax system, one part of the tax being levied on the taxable income and the other, a secondary tax on companies (STC), on distributed income. Currently STC is not a withholding tax on shareholders but a tax on companies.
Current income tax payable also includes any income tax liability arising from the declaration of dividends.
The tax effect of dividends is recognised when the liability to pay the dividend is recognised. The STC liability is reduced by dividends received during the dividend cycle, and where dividends received exceed dividends declared within a cycle there is no liability to pay STC. The potential tax benefit related to excess dividends received is carried forward to the next dividend cycle. Deferred tax assets are recognised in respect of unutilised STC credits to the extent that it is probable that the Group will declare future dividends to utilise such STC credits.
Where dividends declared exceed the dividends received during a cycle, STC is payable at the current STC rate. STC is a charge to profit or loss, and is recognised in the taxation charge in profit or loss in the same period as the related dividend is accrued as a liability.
1.8. Leased assets
A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership.
Finance leases - lessee
Finance leases are recognised as assets and liabilities in the statement of financial position at amounts equal to the fair-value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding liability to the lessor is included in the statement of financial position as a finance lease obligation. Each lease payment is allocated between the liability and finance charges using the effective interest method. Finance costs are charged to profit or loss over the lease period.
Subsequent to initial recognition, the asset is accounted in accordance with the accounting policy applicable to the asset.
Operating leases - lessee
Operating lease payments are recognised as an expense on a straight-line basis over the lease period. The difference between the amounts recognised as an expense and the contractual payments is recognised as an operating lease asset or liability. This liability is not discounted.
1.9. Inventory
Inventory relating to Huge Group Limited, Huge Telecom Proprietary Limited and CentraCell Proprietary Limited consists of airtime purchased from service providers or from the mobile network operators.
Inventory is measured at the lower of cost or net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. The cost of inventory comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventory to its present location and condition.
The cost of inventory is determined using cost. The same cost formula is used for all inventory having a similar nature and use to the entity.
When inventory is sold, the carrying amount of the inventory is recognised in profit or loss in the period in which the related revenue is recognised. The amount of any write-down of inventory to net realisable value, and all losses of inventory, is recognised as a profit or loss in the period the write-down or loss occurs.
Huge Group Limited
62
Accounting policies (continued)
1.9 Inventory (continued)
The amount of any reversal of any write-down of inventory arising from an increase in net-realisable value is recognised as a reduction in the amount of inventory recognised in profit or loss, limited to original cost, in the period in which the reversal occurs.
1.10. Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and single stock futures call accounts, together with other short-term highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.
1.11. Impairment of assets
The Group assesses whether there is any indication that an asset may be impaired at the end of each reporting period. If any such indication exists the Group estimates the recoverable amount of the asset.
Impairment of non-financial assets
The Group evaluates the carrying value of assets with finite useful lives when events and circumstances indicate that the carrying value may not be recoverable. Irrespective of whether there is an indication of impairment, the Group tests goodwill acquired in business combinations for impairment annually. This impairment test is performed during the initial period and annually thereafter. Intangible assets not yet available for use or with an indefinite useful life are tested annually for impairment.
An impairment of a non-financial asset is recognised in profit or loss when the carrying amount of an asset exceeds its recoverable amount. An asset’s recoverable amount is the higher of the fair-value-less-cost-to-sell (the amount obtainable from the sale of an asset in an arm’s-length transaction between market participants), or its value-in-use. Value-in-use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. The estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash generating units ("CGU").
An impairment recognised in relation to an asset, other than goodwill, in prior years is reversed if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment was recognised and the recoverable amount exceeds the new carrying amount. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro-rata basis. The reversal of the impairment is limited to the carrying amount that would have been determined (net of depreciation or amortisation) had no impairment been recognised in prior years. The reversal of such impairment is recognised in profit or loss in the same line item as the original impairment charge.
Impairment of financial assets
The Group assesses at each reporting date whether a financial asset or group of financial assets, other than financial assets held-at-fair-value-through-profit-or-loss, is impaired.
If there is objective evidence that a loss event has occurred after the initial recognition of the asset(s) and that that loss event has an impact on the future cash flows of the asset(s) that can be estimated reliably, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced through use of an allowance account. The amount of the impairment is recognised in profit or loss.
If in a subsequent period the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment is reversed to the extent that the carrying value of the asset does not exceed its amortised cost as at the reversal date. Any subsequent reversal of an impairment charge is recognised in profit or loss.
In relation to trade receivables, an allowance for impairment is made when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor detected through payment history) that the Group will not be able to collect all of the amounts due under the original terms of the invoice. The carrying amount of the receivable is reduced through use of an allowance account. Impaired debts are de-recognised when they are assessed as uncollectible.
1.12. Share capital and equity
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.
Share capital represents the nominal value of the ordinary par value shares that have been issued.
Huge Group Limited
63
Accounting policies (continued)
1.12 Share capital and equity (continued)
Share premium includes any premium received on the issue of share capital and premiums paid on the repurchase of share capital. Any transaction cost associated with the issuing of shares is deducted from share premium, net of any related income tax benefit.
The revaluation reserve within equity comprises gains and losses due to the revaluation of property, plant and equipment, net of any deferred tax effect. The share option reserve previously disclosed within equity related to the Eyeballs Mobile Advertising Proprietary Limited option issued in 2009 (‘the Eyeballs Option”) and the call options held against directors and past directors purchased by the Company in 2010 (“the Directors’ Options”). The Eyeballs Option lapsed at 17h00 on 1 March 2012, and for this reason the share option reserve in the Statement of Changes in Equity was released through retained earnings.
Retained earnings include all current and prior period retained profits.
Dividend distributions payable to equity shareholders are included in other liabilities when the dividends have been approved in a general meeting prior to the reporting date.
Treasury shares
Ordinary par value shares in Huge Group Limited held by a subsidiary company are treated as treasury shares on consolidation. These shares are treated as a deduction from the issued and weighted average numbers of shares in issue, and the cost price of the shares is deducted from share capital and share premium in the statement of financial position on consolidation. Dividends received on treasury shares are eliminated on consolidation.
1.13. Provisions
Provisions are recognised when:
the Group has a present obligation as a result of a past event;
it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and
a reliable estimate can be made of the obligation.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognised as an interest expense.
1.14. Employee benefits
Short-term employee benefits
The cost of short-term employee benefits, being those payable within 12 months after the service is rendered, such as paid vacation leave, bonuses, and non-monetary benefits such as medical care, are recognised in the period in which the service is rendered and are not discounted.
The expected cost of compensated absences is recognised as an expense as the employees render services that increase their entitlement or, in the case of non-accumulating absences, when the absence occurs.
The expected cost of profit sharing and bonus payments is recognised as an expense when there is a legal or constructive obligation to make such payments as a result of past performance, and the obligation can be estimated reliably.
Defined contribution plans
A defined contribution plan is one under which a company pays a fixed percentage of employees’ remuneration as contributions into a separate entity (a fund), and which will entail no further legal or constructive obligations to pay additional contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee services in the current and prior periods. Contributions to defined contribution plans in respect of services rendered during a period are recognised as an employee benefit expense when they are due. The Group does not have any defined benefit plans.
Share-based payment transactions
Share-based payment arrangements in which the Group received goods or services as consideration for its own equity instruments are accounted for as equity-settled share-based payment transactions regardless of how the equity instruments are obtained by the Group.
Huge Group Limited
64
Accounting policies (continued)
1.14 Employee benefits (continued)
The fair-value of equity-settled share-based payment awards granted to employees is recognised as an employee expense with a corresponding increase in equity over the period that the employees unconditionally became entitled to the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market vesting conditions are expected to be met such that the amount ultimately recognised as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the vesting date. For equity-settled share-based payment awards with non-vesting conditions, the fair-value of the share-based payment is measured to reflect such conditions and no equalisation for differences between expected and actual outcomes takes place.
1.15. Segment reporting
An operating segment is a component of the Group that engages in business activities from which it may earn revenue and incur expenses, including revenue and expenses that relate to transactions with any of the Group's other components. An operating segment's results are reviewed regularly by the Chief Executive Officer (who is deemed the Chief Operating Decision Maker) to make decisions about resources to be allocated to each segment and to assess each segment's performance, and for which discrete financial information is available.
1.16. Revenue
Revenue from the sale of telecommunication services and airtime in the course of ordinary activities is measured at the fair-value of the consideration received or receivable, net of returns, trade discounts and volume rebates. Revenue is recognised when significant risks and rewards of ownership have been transferred to the customer and when the recovery of the consideration is probable, when the associated costs and possible return of goods can be estimated reliably, when there is no continuing management involvement with the goods, and when the amount of revenue can be measured reliably. If it is probable that discounts will be granted and the amount can be measured reliably, then the discount is recognised as a reduction of revenue as the sale is recognised.
Revenue from the rendering of services in the course of ordinary activities is recognised on a monthly basis, subsequent to the monthly billing run.
1.17. Investment income
Investment income includes finance and dividend income. Finance income is recognised on an accrual basis using the effective interest method. Dividend income is recognised at the time that the right to receive payment is established.
1.18. Cost of sales
When inventory is sold the carrying amount of the inventory is recognised as an expense in the period in which the related revenue is recognised.
The related cost of providing services recognised as revenue in the current period is included in cost of sales.
1.19. Finance costs
Borrowing costs directly attributable to the acquisition, construction, or production of a qualifying asset form part of the cost of that asset and may no longer be expensed. Other finance costs are recognised as an expense based on the principal amount outstanding using the effective interest rate method.
The Group has not previously capitalised finance costs and does not have any qualifying projects.
1.20. Dividends payable
Dividends payable and STC thereon is recognised in the period in which such dividends are declared.
1.21. Earnings per share
The Group presents basic and diluted earnings per share ("EPS") data in relation to its ordinary par value shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Group by the weighted average number of ordinary shares outstanding during the period, adjusted for treasury shares held. Diluted EPS is determined by dividing the profit or loss attributable to ordinary shareholders of the Group by the weighted average number of ordinary shares outstanding adjusted for treasury shares held and for the effects of all potential ordinary par value shares to be issued in the future.
Huge Group Limited
65
Accounting policies (continued)
2. Property, plant and equipment
Group 2012 2011
Cost/ Accumulated Carrying Cost/ Accumulated Carrying
Valuation depreciation amount Valuation depreciation amount
Land - - - 1 926 185 - 1 926 185
Buildings - - - 2 973 815 - 2 973 815
Plant and equipment 220 983 (169 541) 51 442 - - -
Furniture and fixtures 1 072 964 (736 249) 336 715 1 575 322 (890 475) 684 847
Motor vehicles 1 747 371 (754 947) 992 424 1 579 742 (930 910) 648 832
Office equipment 1 208 041 (598 145) 609 895 574 662 (499 598) 75 064
IT equipment 6 635 030 (5 395 412) 1 239 618 10 680 507 (8 677 719) 2 002 788
Leasehold improvements 186 161 (76 584) 109 577 1 076 203 (604 420) 471 783
Router equipment 57 811 821 (28 126 428) 29 685 393 95 901 917 (65 784 040) 30 117 877
Total 68 882 371 (35 857 307) 33 025 064 116 288 353 (77 387 162) 38 901 191
Huge Group Limited
66
Property, plant and equipment (continued)
Reconciliation of movement in property, plant and equipment - Group - 2012
Opening Additions Additions Disposals Transfers Revaluations Depreciation Closing
balance through balance
business
Figures in Rand combinations
Land 1 926 185 - - (1 926 185) - - - -
Buildings 2 973 815 - - (2 973 815) - - - -
Plant and equipment 169 462 - - (88 847) - (29 173) 51 442
Furniture and fittings 515 385 16 081 - (8 516) - - (186 238) 336 712
Motor vehicles 648 832 905 065 - (290 105) - - (271 366) 992 426
Office equipment 75 064 674 576 - - - - (139 744) 609 896
IT equipment 2 002 788 209 781 - - - - (972 951) 1 239 618
Leasehold improvements 471 783 46 640 - (249 659) - - (159 187) 109 577
Router equipment 30 117 877 285 578 - - - - (718 063) 29 685 392
38 901 191 2 137 721 - (5 537 127) - - (2 476 721) 33 025 064
Note 44
Reconciliation of movement in property, plant and equipment - Group - 2011
Opening Additions Additions Disposals Transfers Revaluations Depreciation Closing
balance through balance
business
Figures in Rand combinations
Land 2 171 871 - - - - (245 686) - 1 926 185
Buildings 3 353 128 - - - - (379 313) - 2 973 815
Furniture and fittings 300 550 145 810 - (2 763) 414 491 - (173 241) 684 847
Motor vehicles 865 784 - - (58 637) - - (158 315) 648 832
Office equipment 657 945 39 975 - (814) (497 439) - (124 603) 75 064
IT equipment 2 900 674 533 637 53 465 (63 485) - - (1 421 503) 2 002 788
Leasehold improvements 407 716 207 928 - - 82 948 - (226 809) 471 783
Router equipment 32 916 199 1 724 514 - - - - (4 522 836) 30 117 877
43 573 867 2 651 864 53 465 (125 699) - (624 999) (6 627 307) 38 901 191
Note 40 44
Huge Group Limited
67
Property, plant and equipment (continued)
Group Company
Figures in Rand 2012 2011 2012 2011
Details of security pledges
Land and buildings - 4 900 000 - -
Land and Buildings located at the Doncaster Office Park, Kenilworth in the Western Cape were sold during the current financial year.
Motor vehicles 583 468 648 832 - -
Five (2011: Ten) light commercial vehicles with a carrying value of R 583 468 (2011: R 515 087) serve as security for instalment sale agreements concluded with Wesbank Limited.
Nil (2011: Two) light commercial vehicles with a carrying value of RNil (2011: R 133 735) serve as security for instalment sale agreements concluded with McCarthy Limited
Assets subject to finance leases
Router equipment under finance leases - 1 641 860 - -
IT equipment under finance leases - 861 019 - -
Generators under finance leases - 30 399 - -
Revaluations of land and buildings
Section 1 and Section 5, Erf 534, Doncaster Office Park
Land and buildings consisting of an office building situated in the municipality of Kenilworth, Cape Town, held under Title Deed No SK2204/2003S, which were disposed of during the year.
Purchase price on acquisition of subsidiary company - 4 810 357 -
Revaluation since acquisition - 71 182 -
Additions since acquisition - 18 461 -
- 4 900 000 -
Land and buildings are re-valued independently every year. The effective date of the most recent revaluation was 18 March 2011. The valuation was performed by an independent valuer, Mr Dave Holgate, a Professional Associated Property Valuer, of Holgate Property Services Proprietary Limited.
The valuation was performed using the income capitalisation method, and the following assumptions were used:
Vacancy of 3%; Rate per square meter of R75.00; Area 629 square meters.
Huge Group Limited
68
Change in accounting estimate During the previous financial year the Group revised the estimated useful life of router equipment from 6 years to 10 years. The financial effect of this change is a decrease in depreciation of R7 522 087 for the previous period. The change will have a similar effect on future periods. There was no change to the policy during the current year.
The carrying amount of the re-valued assets under the cost model would have been:
Group 2012 2011
Land Buildings Total Land Buildings Total
Acquired through business
combination - - - 1 878 272 2 932 085 4 810 357
Additions - - - - 18 461 18 461
Accumulated depreciation - - - - (534 202) (534 202)
- - - 1 878 272 2 416 344 4 294 616
3. Goodwill
Group 2012 2011
Cost Accumulated Carrying Cost Accumulated Carrying
impairment amount impairment amount
Goodwill 215 251 256 (97 774) 215 153 482 215 251 256 (97 774) 215 153 482
The goodwill arose on the acquisition of Huge Telecom Proprietary Limited on 9 July 2007 and on the acquisition of CentraCell Proprietary Limited on 13 August 2007. These businesses are measured and viewed as one single cash-generating unit ("CGU").
Goodwill is tested annually for impairment and has an indefinite useful life.
During the current and prior financial year the Group assessed the recoverable amount of goodwill and determined that no impairment was required.
The recoverable amount or value-in-use was determined by discounting the future cash flows generated from the continuing use of the cash-generating units of Huge Telecom Proprietary Limited and CentraCell Proprietary Limited.
The valuation for 2011 was undertaken by BDO (Jhb) Corporate Finance Proprietary Limited.
The valuation for 2012 was undertaken by Managhan SA Proprietary Limited.
Assumptions used in computing the value-in-use were as follows and were based on external sources of information:
Revenue growth rate of 21.7% for the year to end 28 February 2013 and an average growth rate of 7.5% for the financial years 2014- 2017;
Operating costs increasing at the growth rate of 18.9% for the 2013 financial year, and constant at 6.5% for the financial years 2014 - 2017;
A pre-tax discount rate of 19.6%;
A terminal growth rate of 5%.
While the value-in-use calculation demonstrates no impairment at year-end, the calculation is particularly sensitive to the following inputs (assuming all others remain constant):
An increase in the weighted average cost of capital of 1.6% will result in an impairment of R25.2 million;
An increase in the forecast gross profit percentage of 1% will result in an impairment of R34.3 million; and
A decrease of 0.5% in the expected revenue growth rates over the five year forecast period will result in an impairment of R50.4 million.
Huge Group Limited
69
4. Intangible assets
Group 2012 2011
Cost Accumulated Carrying Cost Accumulated Carrying
amortisation amount amortisation amount
Trademarks and
other rights 102 368 (50 136) 52 232 244 405 - 244 405
Computer software,
internally generated 11 331 674 (3 612 987) 7 718 687 10 474 949 (2 862 132) 7 612 817
Computer software,
Purchased 3 547 713 (2 510 251) 1 037 462 4 225 651 (2 847 443) 1 378 208
Customer base and patents 1 275 007 (1 112 936) 162 071 1 112 937 (1 012 584) 100 353
Eyeballs technology 16 054 297 (9 632 578) 6 421 719 16 054 297 (7 674 020) 8 380 277
Total 32 311 059 (16 918 889) 15 392 170 32 112 239 (14 396 179) 17 716 060
Patents, trademarks and other rights
During the current and prior financial year the Group assessed the recoverable amount of patents and other rights with an indefinite life and determined that no impairment was required.
Eyeballs Technology
R 5 479 067 of the internally generated computer software in the prior year relates to the Eyeballs technology asset reflected in the separate financial statements of the subsidiary company Eyeballs Mobile Advertising Proprietary Limited. This amount together with the carrying value of R 8 380 277 reflected as Eyeballs technology above represents the R14 000 000 which in the prior year was subject to significant judgement and estimate referred to in note 1.2. The remaining useful life of the Eyeballs technology asset at the previous year-end was 3 years.
Change in accounting estimate
During the prior period the Group revised the estimated useful life of the Eyeballs Technology from 10 years to 5 years. The financial effect of this change was an increase in amortisation of R4 463 160 for the previous period. The change has a similar effect on future periods. The asset will be amortised at an estimated R2 973 425 over the remaining useful life of 2 years. There was no change during the current year.
Huge Group Limited
70
Reconciliation of movement in intangible assets - Group - 2012
Opening Additions Additions Disposals Transfers Revaluations Amortisation Closing
balance through balance
business
Figures in Rand combinations
Trademarks and other
rights 99 503 - - - - - (47 272) 52 231
Computer software, internally
generated 7 612 817 1 491 525 - - - - (1 385 655) 7 718 687
Computer software, purchased 1 378 208 7 708 - (23 611) - - (324 843) 1 037 462
Customer base and patents 245 256 17 167 - - - - (100 352) 162 071
Eyeballs technology 8 380 277 - - - - - (1 958 558) 6 421 719
17 716 061 1 516 400 - (23 611) - - (3 816 679) 15 392 170
Note 44
Reconciliation of movement in intangible assets - Group - 2011
Opening Additions Additions Disposals Transfers Revaluations Amortisation Closing
balance through balance
business
Figures in Rand combinations
Trademarks and other
rights 144 525 99 880 - - - - - 244 405
Computer software, internally
generated 5 160 776 3 968 784 - - - - (1 516 743) 7 612 817
Computer software, purchased 1 693 773 803 613 199 440 - - - (1 318 618) 1 378 208
Customer base and patents 658 642 - - - - - (558 289) 100 353
Eyeballs technology 14 448 867 - - - - - (6 058 590) 8 380 277
22 106 583 4 872 277 199 440 - - - (9 462 240) 17 716 060
Note 44
Huge Group Limited
71
5. Investments in subsidiary companies
Company
Figures in Rand 2012 2011
Name of company Held by Note % % Carrying Carrying
holding holding amount amount
2012 2011 2012 2011
CentraCell Proprietary
Limited Huge Group Limited 100 100 107 100 453 107 100 453
Eyeballs Mobile
Advertising Proprietary
Limited Huge Group Limited 77 77 6 000 000 6 000 000
Huge Cellular Proprietary Huge Telecom Proprietary Limited
Limited - 100 - 100
Huge Media Proprietary
Limited Huge Group Limited 100 100 100 100
Huge Telecom Proprietary
Limited Huge Group Limited 100 100 127 998 784 127 998 784
241 099 337 241 099 437
CentraCell Proprietary Limited
Shares 69 411 943 69 411 943
Loans 37 688 510 37 688 510
107 100 453 107 100 453
Eyeballs Mobile Advertising Proprietary Limited
Shares 6 000 000 6 000 000
Huge Cellular Proprietary Limited
Shares - 100
Huge Media Proprietary Limited
Shares 100 100
Huge Telecom Proprietary Limited
Shares 113 343 478 113 343 478
Loans 14 655 306 14 655 306
127 998 784 127 998 784
The carrying amount of the investments in subsidiary companies approximates their fair value. No impairment has been identified in the current year (2011: Rnil). The recoverable amounts of the subsidiary companies exceed their carrying values.
All the rights, title and interest to 30% of the issued share capital of CentraCell Proprietary Limited and 30% of the issued share capital of Huge Telecom Proprietary Limited are pledged and ceded as continuing general covering collateral security for the payment and performance of the obligations of Huge Telecom Proprietary Limited and CentraCell Proprietary Limited to Vodacom Service Provider Company Proprietary Limited.
During the year under review, Huge Cellular was transferred from Huge Group and became a 100% owned subsidiary of Huge Telecom Proprietary Limited.
Huge Group Limited
72
6. Investment in joint-venture company
Group
Figures in Rand 2012 2011
Name of company Held by Note % % Carrying Carrying
Holding Holding Amount Amount
2012 2011 2012 2011
Gonondo Telecom Huge Telecom
Proprietary Limited Proprietary Limited 50 50 562 230 387 558
The carrying amount of the interest in the joint-venture company is shown net of impairment losses, and approximates its fair value.
The movement in the carrying amount of the investment in the joint-venture company is as follows:
Opening balance 387 558 540 291
Share of earnings 174 672 (152 733)
Closing balance 562 230 387 558
The Group’s share of earnings in the joint-venture company is made up as follows:
Profit from the joint-venture company 394 672 547 267
Dividends received (175 000) (700 000)
Share of earnings from the joint venture company (174 672) 387 558
Summary of Group’s interest in the joint-venture company
Statement of financial position
Non-current assets 191 521 394 930
Current assets 682 352 729 882
Non-current liabilities – non-interest bearing (53 293) (224 594)
Current liabilities – non-interest bearing (34 264) (125 102)
Equity 784 316 775 116
Income statement
Revenue 1 699 500 2 198 419
Expenses (1 175 453) (489 059)
Investment income 11 471 14 270
Income tax expense (184 734) (620 096)
Profit for the year 350 784 1 103 534
Statement of cash flows
Cash generated from operating activities 378 342 1 517 613
Cash flows from investing activities - 13 000
Cash flows from financing activities (350 000) (1 400 000)
Net cash inflow/(outflow) 28 342 130 613
Huge Group Limited
73
7. Investment in associate companies
Group
Figures in Rand 2012 2011
Name of company Held by Note % % Carrying Carrying
holding Holding Amount Amount
2012 2011 2012 2011
Managed Voice Solutions Huge Telecom
Proprietary Limited Proprietary Limited 33 33 (736 461) (220 000)
TelePassport
Communications Huge Telecom
Proprietary Limited Proprietary Limited - 49 - 1 811 107
The carrying amount of the interest in the associate companies is shown net of impairment losses, and approximates its fair value.
The movement in the carrying amount of the investment in the associate companies is as follows:
Managed Voice Solutions Proprietary Limited
Opening balance (220 000) 57 940
Share of earnings (516 461) (277 940)
Closing balance (736 461) (220 000)
TelePassport Communications Proprietary Limited (Incorporated in Namibia)
Opening balance 1 811 107 2 332 732
Share of earnings 403 522 (521 625)
Disposal (2 214 629) -
Closing balance - 1 811 107
The Group’s share of earnings in the associate companies is made up as follows:
Managed Voice Solutions Proprietary Limited
Loss from the associate company (516 461) (277 940)
Dividends received - -
Share of losses from the associate company (516 461) (277 940)
TelePassport Communications Proprietary Limited (Incorporated in Namibia)
Profit from the associate company 1 339 557 1 438 375
Dividends received (980 000) (1 960 000)
Share of earnings from the associate company 359 557 (521 625)
Huge Group Limited
74
7. Investment in associate companies (continued)
Group
Figures in Rand 2012 2011
Summary of Group’s interest in the associate companies
Managed Voice Solutions Proprietary Limited
Statement of financial position
Non-current assets 84 018 3 399 298
Current assets 793 549 809 939
Non-current liabilities – non-interest bearing (3 055 210) (4 843 763)
Current liabilities – non-interest bearing (38 061) (55 932)
Equity (2 215 704) (690 458)
Income statement
Revenue 992 463 2 252 939
Expenses (2 836 895) (2 843 784)
Other income 310 165 233 904
Income tax expense - -
Loss for the year (1 534 267) (356 941)
Statement of cash flows
Cash generated from operating activities (81 919) (718 035)
Cash flows from investing activities 2 188 799 (6 609)
Cash flows from financing activities (1 788 553) 400 814
Net cash inflow/(outflow) 318 327 (323 830)
TelePassport Communications Proprietary Limited (Incorporated in Namibia)
Statement of financial position
Non-current assets - 1 360 729
Current assets - 6 222 352
Non-current liabilities – non-interest bearing - (293 487)
Current liabilities – non-interest bearing - (3 593 460)
Equity - 3 696 134
Income statement
Revenue 20 687 762 28 128 897
Expenses (16 535 222) (23 953 748)
Investment income 99 407 146 780
Income tax expense (1 428 429) (1 386 470)
Profit for the year 2 823 518 2 935 459
Statement of cash flows
Cash generated from operating activities 1 545 833 559 200
Cash flows from investing activities - 136 811
Cash flows from financing activities - -
Net cash inflow 1 545 833 696 011
Huge Group Limited
75
8. Loans to/(from) subsidiary companies
Group Company
Figures in Rand 2012 2011 2012 2011
Subsidiary companies
CentraCell Proprietary Limited 3 871 289 6 444 703
The loan is unsecured, bears interest at the prime overdraft rate. The loan is immediately repayable on the granting of any order, whether provisional or final, placing CentraCell Proprietary Limited in liquidation or under judicial management as a result of the proceedings launched by a third party. The loan was subordinated by the Company in the prior year. There are no fixed terms of repayment relating to the loan in the current year and there is no intention to recall it in the next 12 months.
Eyeballs Mobile Advertising Proprietary Limited 20 085 519 13 731 598
The loan is unsecured, bears interest at the prime overdraft rate and has no fixed terms of repayment. The loan is subordinated by the Company.
Huge Cellular Proprietary Limited 1 509 000 (100)
The loan is unsecured, bears no interest and has no fixed terms of repayment.
Huge Media Proprietary Limited 6 694 906 -
The loan is unsecured and bears no interest. The loan is subordinated by the Company and has no fixed terms of repayment.
Huge Telecom Proprietary Limited (51 086 755) (42 542 212)
The loan is unsecured, bears interest at the prime overdraft rate and has no fixed terms of repayment.
(18 926 041) (22 366 011)
Non-current assets 32 160 714 20 176 301
Current liabilities (51 086 755) (42 542 312)
(18 926 041) (22 366 011)
Loans to subsidiary companies are considered permanent capital of the entities and are interest bearing at the discretion of management. There is no intention to request repayment. Refer to paragraph 4 of the Directors’ Report for more information in this regard. The carrying amount of investments in subsidiary companies approximates their fair-value.
Huge Group Limited
76
9. Investments
Group Company
Figures in Rand 2012 2011 2012 2011
Held for trading
Listed investments at fair-value
The shares in Jasco Limited were valued based on the last price at which the share traded on the JSE Limited prior to year-end.
Jasco Limited (235 142 ordinary shares) 263 159 305 585 263 159 305 585
Non-current assets
Held for trading 263 159 305 585 263 159 305 585
10. Deferred taxation
Deferred tax asset 12 258 656 10 511 201 2 437 565 3 268 947
Deferred tax liability (1 798 081) (2 385 861) - -
10 460 574 8 125 340 2 437 565 3 268 947
Reconciliation of deferred taxation
Opening balance 8 125 340 5 612 635 3 268 947 2 820 237
Included in income tax expense 2 298 524 2 209 745 (831 382) 448 710
Included in other comprehensive income - 140 603 - -
Deferred tax asset acquired through business
combinations - 162 357 - -
Other 36 710 - - -
10 460 574 8 125 340 2 437 565 3 268 947
Deferred taxation is made up of the following:
Tax losses available for set-off against future taxable
income 18 325 369 15 382 308 2 437 565 3 281 853
Prepaid expenses (75 062) (467 098) - (42 534)
Amounts received in advance 696 263 - -
Allowance for doubtful debts 713 342 1 131 829 - -
Accrual for leave pay 359 526 404 832 - -
Revaluation of land and buildings reversed 566 689 (18 392) - -
Finance leases - (242 155) - -
Operating leases - 49 917 - -
Restraint of trade - - - -
Property, plant and equipment and intangibles (8 327 472) (5 759 668) - -
Prepaid income - - - -
Fair-value adjustments - Investments - 29 628 - 29 628
Intangible assets - intellectual property relating to the
Eyeballs Mobile Advertising Proprietary Limited
Acquisition (1 798 081)
(2 385 861) - -
10 460 574 8 125 340 2 437 565 3 268 947
The Group and Company have considered the tax losses available for set-off against future taxable income and all recoverable amounts have been raised, resulting in a total of R10 460 574.
Huge Group Limited
77
10. Deferred taxation (continued)
Group Company
Figures in Rand 2012 2011 2012 2011
Eyeballs Mobile Advertising Proprietary Limited (16 229 872) (14 752 878) - -
Huge Cellular Proprietary Limited (268 078) - - -
Huge Group Limited - (10 000 519) - (10 000 519)
Huge Media Proprietary Limited (552 012) (7 692 998) - -
Huge Telecom Proprietary Limited (23 888 971) - - -
Le Gacy Telecom (FRA) Proprietary Limited (81 952) - - -
11. Inventory
Airtime 9 151 439 18 888 306 3 805 052 -
Airtime subject to legal dispute - 26 661 546 - -
- 45 549 852 - -
Obsolescence allowance - (1 800 000) - -
9 151 439 43 749 852 3 805 052 -
Inventory that relates to certain service providers is written down to net realisable value as the airtime inventory expires over periods from one to six months.
Dispute between MTN Service Provider Proprietary Limited (“MTNSP”) and Huge Telecom
MTNSP 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.
MTNSPs filed its replying affidavit on 1 July 2011.
The application proceedings were heard on 23 July 2012. The presiding Judge has referred the matter to trial, but the matter has not been set down as yet.
The Group has recognised the assets and the liabilities relating to the MTNSP 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. (Refer to note 14 page 79)
12. Loans to/(from) associate companies
Managed Voice Solutions Proprietary Limited 199 958 1 779 083
The loan is unsecured, bears interest at the prime overdraft rate and has no fixed terms of repayment. The loan is subordinated by the Group.
TelePassport Communications Proprietary Limited - (1 212 057)
The loan is unsecured, bears no interest and is repayable within 12 months.
199 958 567 026
Current assets 199 958 1 779 083
Current liabilities - (1 212 057)
199 958 567 026
Huge Group Limited
78
13. Loans to/(from) shareholders
Group Company
Figures in Rand 2012 2011 2012 2011
James Charles Herbst (1 868 990) - 112 576 -
The loan is unsecured, bears interest at a rate of 4% above the prime overdraft rate (2011: 4% above the prime overdraft rate).
A portion of the loan was repaid during the year. The loan was subordinated to FirstRand Bank Limited as disclosed in note 16. The loan could not be repaid without the consent of FirstRand Bank Limited.
Anton Daniel Potgieter (800 550) (654 951) 179 429 (654 951)
The loan is unsecured, bears interest at a rate of 4% above the prime overdraft rate (20011: 4% above the prime overdraft rate).
A significant portion of the loan was repaid during the year. The loan is subordinated to FirstRand Bank Limited as disclosed in note 16. The loan cannot be repaid without the consent of FirstRand Bank Limited.
The subordination agreement with FirstRand Bank Limited allowed the repayment of Anton Daniel Potgieter's loan in monthly instalments not exceeding R300 000. (Refer note 16).
Michael Ronald Beamish (181 844) (173 807) - -
The loan is unsecured, bears interest at prime overdraft rate but has no fixed terms of repayment. The loan is subordinated in favour of the loans owing to Consumer Group Proprietary Limited.
Current liabilities (2 851 384) (828 758) - (654 951)
Current assets - - 292 005 -
James Charles Herbst
Opening balance - 1 400 201 - 1 383 243
Advances 647 408 10 774 2 039 934 10 774
Repayments (2 506 528) (1 482 400) (1 917 488) (1 470 574)
Interest paid (9 870) 71 425 (9 870) 76 557
Closing balance (1 868 990) - 112 576 -
Anton Daniel Potgieter
Opening balance (654 951) 7 573 683 (654 951) 7 473 683
Transfer of advances from subsidiary company 2 924 209 - 2 924 334 100 000
Repayments (3 041 034) (7 570 531) (2 061 180) (7 570 531)
Interest paid (28 775) 651 799 (28 775) 651 799
Closing balance (800 550) 654 951 179 429 654 951
Michael Ronald Beamish
Opening balance 173 807 152 809 - -
Interest paid 8 037 20 998
Closing balance (181 844) (173 807) - -
These loans are trading loans and fluctuate throughout the year.
Huge Group Limited
79
14. Trade and other receivables
Group Company
Figures in Rand 2012 2011 2012 2011
Trade receivables* 34 602 091 53 891 704 117 631 -
Connection incentive bonuses and airtime subject to legal dispute
41 615 893 2 685 840 - -
Prepayments 453 504 3 532 529 - 120 431
Staff loans 9 260 - - -
Deposits 4 557 858 5 299 933 - 114 367
VAT 97 281 4 076 857 1 617 1 044 364
81 335 887 69 486 863 119 248 1 279 162
* Huge Telecom Proprietary Limited has ceded, as security, all its rights, title and interest in, and to, the Huge Telecom Proprietary Limited book debts to FirstRand Bank Limited. (Refer to note 16).
Dispute between MTN Service Provider Proprietary Limited (“MTNSP”) and Huge Telecom
MTNSP 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.
MTNSP’s filed its replying affidavit on 1 July 2011.
The application proceedings were heard on 23 July 2012. The presiding Judge has referred the matter to trial, but the matter has not been set down as yet.
The Group has recognised the assets and the liabilities relating to the MTNSP 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. (Refer to note 11 page 77)
15. Derivative margin deposits
Derivative margin deposits
Single stock futures – margin deposits 2 815 925 3 361 880 2 815 925 3 218 200
Contracts for difference – margin deposits 4 459 999 5 193 090 - -
Total 7 275 924 8 554 970 2 815 925 3 218 200
Current assets 7 275 924 8 554 970 2 815 925 3 218 200
16. Cash and cash equivalents
Cash and cash equivalents consist of:
Cash on hand 3 204 73 434 - -
Bank balances 17 370 111 11 860 453 6 530 855 7 458 078
Bank overdraft (17 361 308) (21 955 871) - -
12 007 (10 021 984) 6 530 855 7 458 078
Huge Group Limited
80
16. Cash and cash equivalents (continued)
Group Company
Figures in Rand 2012 2011 2012 2011
Current assets 17 373 315 11 933 887 6 530 855 7 458 078
Current liabilities (17 361 308) (21 955 871) - -
12 007 (10 021 984) 6 530 855 7 458 078
FirstRand Bank Limited acts as bankers to the following companies within the Group by providing these companies with basic cheque account facilities:
Eyeballs Mobile Advertising Proprietary Limited
Huge Cellular Proprietary Limited
Huge Group Limited
Huge Media Proprietary Limited
Huge Telecom Proprietary Limited
Le Gacy Telecom (FRA) Proprietary Limited
Nedbank Limited acts as banker, and provides basic cheque account facilities, to CentraCell Proprietary Limited.
Huge Telecom Proprietary Limited has entered into agreement with FirstRand Bank Limited for the provision of the following additional banking facilities:
Short-term direct single account debtor finance facility of R23 000 000, where amounts owing are repayable on demand, subject to annual review.
Settlement encashment facility of R8 000, where amounts owing are repayable on demand, subject to annual review.
Settlement payments and collection service, facility of R2 000 000, where amounts owing are repayable on demand, subject to annual review.
The short-term direct debtor finance facility is subject to the following material terms and covenants:
Collateral
General deeds of suretyship in favour of FirstRand Bank Limited given by the following persons/entities for the obligations to FirstRand Bank Limited of the entities listed below:
Surety Debtor Amount
Anton Daniel Potgieter Huge Telecom Proprietary Limited R5 000 000
James Charles Herbst Huge Telecom Proprietary Limited R5 000 000
CentraCell Proprietary Limited Huge Telecom Proprietary Limited Unlimited
Huge Group Limited Huge Telecom Proprietary Limited Unlimited
Unlimited cession in favour of FirstRand Bank Limited of credit balances held at FirstRand Bank Limited.
Subordination by Huge Group Limited of its loan account balances held against Huge Telecom Proprietary Limited in favour of FirstRand Bank Limited.
Cession by Huge Telecom Proprietary Limited of any and all rights which it has against its debtors, from time to time, upon terms and conditions acceptable to FirstRand Bank Limited.
Subordination of director's loan by James Charles Herbst in Huge Telecom Proprietary Limited.
Subordination of director's loan by Anton Daniel Potgieter in Huge Telecom Proprietary Limited. It was agreed that this loan may be repaid in monthly instalments of R300 000 subject to certain conditions (and any other amounts the Bank may agree).
Huge Group Limited
81
16. Cash and cash equivalents (continued)
Group Company
Figures in Rand 2012 2011 2012 2011
Covenants
Undertaking by Huge Telecom Proprietary Limited not to incur any further interest-bearing debt without the prior permission of FirstRand Bank Limited.
All guarantees issued by FirstRand Bank Limited to be covered by ceded and pledged cash balances, to be held in suitable FirstRand Bank Limited investment type accounts.
Undertaking by Huge Telecom Proprietary Limited and Huge Group Limited to maintain their adjusted equity at a minimum level of R10 000 000; on the basis that equity is regarded as inclusive of subordinated third party/shareholders’ loans, share capital, share premium and accumulated profits, but excludes any intangible assets, goodwill, unsubstantiated investments, debit loans, deferred tax assets, fair-value adjustments and non-distributable reserves.
Undertaking by Huge Telecom Proprietary Limited and Huge Group Limited to not encumber any of their assets without the prior written consent of FirstRand Bank Limited.
Undertaking by Huge Telecom Proprietary Limited to not, otherwise in the ordinary course of business, either in a single transaction or in a series of transaction, whether related or not and whether voluntary of involuntary, sell, transfer or otherwise dispose of the whole or the substantial part of its assets or the whole or the substantial part of its undertaking, without the prior written consent of FirstRand Bank Limited.
Undertaking by Huge Telecom Proprietary Limited and Huge Group Limited to maintain their profit before interest and tax (EBIT) at a ratio that is three times the amount of interest payable during any six consecutive month period.
Undertaking by Huge Telecom Proprietary Limited and Huge Group Limited to not pay dividends without the prior written consent of FirstRand Bank Limited.
Undertaking by Huge Telecom Proprietary Limited to not, in terms of Section 85 and Section 87 of the Companies Act of South Africa, 1973 as amended, reduce its share capital or cause any of its subsidiary companies to do so, without the prior written consent of FirstRand Bank Limited.
Any change in ownership of Huge Telecom Proprietary Limited in excess of 5%, or any change in the de facto or other control of Huge Telecom Proprietary Limited, will entitle FirstRand Bank Limited to review and amend the terms and conditions of the facility or to cancel the facility.
Subordinated loan account in respect of Anton Daniel Potgieter may be repaid at a rate of R5 million and thereafter R 300 000 per month subject to the facility terms and conditions being in compliance.
Advance conditions
The amount of the facility at 29 February 2012 was R23 000 000 (2011: R 23 600 000).
17. Share capital
Authorised share capital
1 000 000 000 ordinary par value shares of R0. 0001
Each 100 000 100 000 100 000 100 000
Share Share Share Share
capital premium capital Premium
Opening balance on 28 February 2007 100 - 100 -
Share issue on 2 July 2007 860 - 860 -
Share issue on 31 July 2007 4 004 75 047 330 4 004 75 047 330
Share issue on 31 July 2007 2 050 51 246 250 2 050 51 246 250
Share issue on 31 July 2007 2 950 73 748 750 2 950 73 748 750
Share issue on 7 August 2007 36 883 462 36 883 462
Share issue to vendors of Centracell Proprietary
Limited 676 21 631 324 676 21 631 324
Huge Group Limited
82
17. Share capital (continued)
Group Company
Figures in Rand 2012 2011 2012 2011
Listing expenses allocated to share premium - (979 380) - (979 380)
Closing balance at 29 February 2008 10 676 221 577 736 10 676 221 577 736
Share issue on 26 June 2008 500 14 999 500 500 14 999 500
Share repurchases during the year (559) (7 754 878) - -
Closing balance at 28 February 2009 10 617 228 822 358 11 176 236 577 236
Share repurchases during the year (406) (2 392 928) -
Closing balance at 28 February 2010 10 211 226 429 430 11 176 236 577 236
Share repurchases during the year (621) (5 321 064) (621) (5 321 064)
Closing balance at 28 February 2011 9 590 221 108 366 10 555 231 256 172
Share repurchases during the year (566) (6 712 807) (566) (6 712 807)
Closing balance at 29 February 2012 9 024 214 395 559 9 989 224 543 365
Rand value of issued shares
111 760 000 ordinary par value shares of R0. 0001
Each 11 176 11 176 11 176 11 176
Treasury shares (2 152) (1 586) (1 187) (621)
9 024 9 590 9 989 10 555
Number of issued shares
Issued shares 105 547 895 111 760 000 105 547 895 111 760 000
Treasury shares (15 306 278) (15 859 031) (5 659 352) (6 212 105)
90 241 617 95 900 969 99 888 543 105 547 895
Share premium
On issue of shares 237 556 616 237 556 616 237 556 616 237 556 616
Less share issue costs (979 380) (979 380) (979 380) (979 380)
Treasury shares (22 181 677) (15 468 870) (12 033 872) (5 321 064)
214 395 559 221 108 366 224 543 364 231 256 172
Treasury shares
Share Share Share Share
capital premium capital premium
Purchased in 2009 559 7 754 878 - -
Purchased in 2010 406 2 392 928 - -
Purchased in 2011 621 5 321 064 621 5 321 064
Purchased in 2012 566 6 712 807 566 6 712 807
2 152 22 181 677 1 187 12 033 871
The unissued ordinary par value shares are under the control of the directors in terms of a resolution of the shareholders passed at the last annual general meeting held on 28 October 2011. This authority remains in force until the next annual general meeting to be held on 28 September 2012.
3 904 579 ordinary shares in Huge Group Limited are the subject of 3 904 579 contracts for difference held with Nedbank Limited. Huge Telecom Proprietary Limited has lodged an initial margin equal to 100% of the value of the underlying reference instruments to these contracts for difference, being Huge Group Limited ordinary par value shares.
359 200 ordinary par value shares in Huge Group Limited are the subject of 3 592 single stock futures contracts held with the South African Futures Exchange. Huge Telecom Proprietary Limited has lodged an initial margin equal to 100% of the value of the underlying reference instruments to these single stock futures contracts, being Huge Group Limited ordinary par value shares.
Huge Group Limited
83
17. Share capital (continued)
Group Company
Figures in Rand 2012 2011 2012 2011
8 045 500 ordinary par value shares in Huge Group Limited are the subject of 80 455 single stock futures held with the South African Futures Exchange. The Company has lodged an initial margin equal to 100% of the value of the underlying reference instruments to these single stock futures contracts, being Huge Group Limited ordinary par value shares.
A total of 12 309 279 ordinary par value shares in Huge Group Limited are accordingly the subject of the foregoing derivative contracts.
18. Reserves
Revaluation reserve
Opening balance 71 250 555 646 - -
Net movement on revaluation of land and buildings - -
(refer to note 3 for further information on the
revaluation of land and buildings) (71 250) (484 396)
Closing balance - 71 250 - -
Share option reserve
Eyeballs Mobile Advertising Proprietary Limited
share option 659 392 659 392 - -
Lapsing of Eyeballs Mobile Advertising Proprietary
Limited share option (659 392) - - -
First tranche – Call Options held against directors
and past directors (701 754) (701 754) (701 754) (701 754)
First tranche – Call Options – transfer of call option
premium on exercise of call options 350 877 - 350 877 -
Second tranche – Call Options held against directors
and past directors (723 685) - (723 685) -
Total reserves (1 074 562) 28 888 (1 074 652) (701 754)
The Eyeballs Mobile Advertising Proprietary Limited option ("Eyeballs Option") is an option granted by Huge Group Limited to the Nash Lewin Trust to acquire 10 000 ordinary par value shares in the issued share capital of Eyeballs Mobile Advertising Proprietary Limited, representing 10% of the total issued ordinary share capital, at a strike price of R137.50 per ordinary par value share. The Eyeballs Option was exercisable at any time from the date it was granted, being 1 March 2009, to close of business on 1 March 2012 (namely three years), after which date it would lapse and be of no further force or effect. The option was not exercised and therefore lapsed at 17h00 on 1 March 2012.
The binomial model was used to determine the fair-value of the Eyeballs Option, as at 1 March 2009. The value of R65.94 per option amounted to a total valuation of R659 392. The Eyeballs Option was treated as an equity-settled transaction.
The following assumptions were used in valuing the Eyeballs Option:
An option life of 3 years (1 March 2009 to 1 March 2012);
A risk-free interest rate of 8.07%;
A volatility of 50%.
Huge Group Limited held the following call options against the following present and past directors of Huge Telecom Proprietary Limited:
30 November 2010 Call Option, at a strike price of 51.34 cents per call option share, in respect of 292 000 ordinary par value shares of Huge Group Limited, exercisable on the delivery by Huge Group Limited of a call option exercise notice to the applicable director (being: 1) any one of the following past directors: Michelle Allison Meth, Vincent Mokhele Mokholo, Gregory Wayne Wright; Eugene Volschenk; Barend Jacobus Vorster; or 2) any one of the following present directors: Manogaran Pillay, Dion David Willis, Amilcar Manuel Aguiar Da Moura) within two business days of the call option exercise date;
Huge Group Limited
84
18. Reserves (continued)
Group Company
Figures in Rand 2012 2011 2012 2011
31 July 2011 Call Option, at a strike price of 51.34 cents per call option share, in respect of 233 600 ordinary par value shares of Huge Group Limited, exercisable on the delivery by Huge Group Limited of a call option exercise notice to the applicable director (being: 1) any one of the following past directors: Michelle Allison Meth, Vincent Mokhele Mokholo, Gregory Wayne Wright; Eugene Volschenk; Barend Jacobus Vorster; or 2) any one of the following present directors: Manogaran Pillay, Dion David Willis, Amilcar Manuel Aguiar Da Moura) within two business days of the call option exercise date;
31 March 2012 Call Option, at a strike price of 51.34 cents per call option share, in respect of 175 200 ordinary shares of Huge Group Limited, exercisable on the delivery by Huge Group Limited of a call option exercise notice to the applicable director (being: 1) any one of the following past directors: Michelle Allison Meth, Vincent Mokhele Mokholo, Gregory Wayne Wright; Eugene Volschenk; Barend Jacobus Vorster; Manogaran Pillay; or 2) any one of the following present directors: Dion David Willis, Amilcar Manuel Aguiar Da Moura) within two business days of the call option exercise date;
30 November 2012 Call Option, at a strike price of 51.34 cents per call option share, in respect of 116 800 ordinary par value shares of Huge Group Limited, exercisable on the delivery by Huge Group Limited of a call option exercise notice to the applicable director (being: 1) any one of the following past directors: Michelle Allison Meth, Vincent Mokhele Mokholo, Gregory Wayne Wright; Eugene Volschenk; Barend Jacobus Vorster; Manogaran Pillay; or 2) any one of the following present directors: Dion David Willis, Amilcar Manuel Aguiar Da Moura) within two business days of the call option exercise date;
31 July 2013 Call Option, at a strike price of 51.34 cents per call option share, in respect of 58 400 ordinary par value shares of Huge Group Limited, exercisable on the delivery by Huge Group Limited of a call option exercise notice to the applicable director (being: 1) any one of the following past directors: Michelle Allison Meth, Vincent Mokhele Mokholo, Gregory Wayne Wright; Eugene Volschenk; Barend Jacobus Vorster; Manogaran Pillay; or 2) any one of the following present directors: Dion David Willis, Amilcar Manuel Aguiar Da Moura) within two business days of the call option exercise date.
Huge Group Limited did not exercise any of its rights under the 30 November 2010 Call Option against any of the applicable directors, and accordingly 467 200 Huge Group Limited ordinary shares are no longer subject to a call option. On 31 July 2011, Huge Group Limited exercised the 31 July 2011 Call Option of 233 600 Huge Group Limited ordinary shares granted by Michelle Allison Meth, Gregory Wayne Wright, Barend Jacobus Vorster and Eugene Volschenk in favour of Huge Group Limited, and accordingly 934 400 Huge Group Limited ordinary shares will be acquired by Huge Group Limited for a total purchase consideration of R480 000, and subsequently cancelled.
The Black-Scholes option pricing model was used to determine the fair-value of these foregoing call options. The following assumptions were used in valuing these call options:
A spot price of 118 cents per ordinary par value share at 29 February 2012;
An exercise price of 51.4 cents per ordinary par value share;
A risk-free rate based on the zero coupon swap rate curve, which covers rates ranging from 5.5% to 6.3%;
An option life ranging from five to 29 months;
No dividend yield;
Expected volatility of 30%.
19. Non-controlling interest
Eyeballs Ambient Le Gacy Total
Mobile Mobile Telecom
Advertising
Balance at 28 February 2010 721 499 - - 721 499
Non-controlling shareholding 23% 49.8% 49.7%
Share of (loss)/profit for the year (1 310 075) (61 728) (526 152) (1 897 956)
Acquisition of subsidiary companies - (96 497) 149 (96 348)
Balance at 28 February 2011 (588 576) (158 225) (526 003) (1 272 805)
Non-controlling shareholding 23% 49.8% 49.7% -
Share of (loss)/profit for the year (172 237) 485 628 (162 082) 151 309
Balance at 29 February 2012 (760 813) 327 403 (688 085) (1 121 496)
Huge Group Limited
85
20. Finance lease obligations
Group Company
Figures in Rand 2012 2011 2012 2011
Minimum lease payments due
- within one year 301 024 4 013 350 -
- in second to fifth year inclusive 548 483 478 834 -
849 507 4 492 184 -
Less: future finance charges (109 936) (378 951) -
Present value of minimum lease payments 739 571 4 113 233 -
Present value of minimum lease payments due
- within one year 294 020 3 674 139 -
- in second to fifth year inclusive 445 550 439 094 -
739 571 4 113 233 -
Non-current liabilities 445 550 439 094 -
Current liabilities 294 020 3 674 139 -
739 571 4 113 233 -
The Group leases certain assets under finance lease agreements. The average lease term is 48 months and the rate of borrowing is variable. Interest rates are linked to the prime overdraft rate at the contract date. Monthly instalments are R74 224 (2011: R518 074) inclusive of interest.
The Group's obligations under finance leases are secured by the lessor's charge over the leased assets (Refer note 2).
21. Other financial liabilities
Kukuklu Limited - 206 316 - -
The loan is unsecured, bears no interest and has no fixed terms of repayment. The loan has been subordinated in favour of other creditors until the assets of Le Gacy Telecom Proprietary Limited, fairly valued, exceed the liabilities.
Not The Only Company Proprietary Limited – Development loan
106 754 102 036 - -
The loan was unsecured, bears interest at the prime overdraft rate but has no fixed terms of repayment. The loan is subordinated in favour of the loans owing to Consumer Group Proprietary Limited.
Nash Lewin Trust – Development loan 106 754 102 036 - -
The loan was unsecured, bears interest at the prime overdraft rate but has no fixed terms of repayment. The loan is subordinated in favour of the loans owing to Consumer Group Proprietary Limited.
Not The Only Company Proprietary Limited 75 090 71 771 - -
The loan is unsecured, bears interest and has no fixed terms of repayment.
Huge Group Limited
86
21. Other financial liabilities (continued)
Group Company
Figures in Rand 2012 2011 2012 2011
Nash Lewin Trust 14 969 71 771 - -
The loan is unsecured, bears interest and has no fixed terms of repayment.
J Ingram 173 425 273 142 - -
The loan is unsecured, bears no interest and has no fixed terms of repayment. The loan has been subordinated in favour of other creditors until the assets, fairly valued exceed the liabilities of Ambient Mobile Proprietary Limited.
GB Shiers 167 331 273 142 - -
The loan is unsecured, bears no interest and has no fixed terms of repayment. The loan has been subordinated in favour of other creditors until the assets, fairly valued exceed the liabilities of Ambient Mobile Proprietary Limited.
EM Kerby 390 378 356 811 - -
The loan is unsecured, bears no interest and has no fixed terms of repayment. The loan has been subordinated in favour of other creditors until the assets, fairly valued exceed the liabilities of Ambient Mobile Proprietary Limited.
TelePassport Namibia 1 664 283 - - -
The loan is unsecured, bears no interest and had no fixed terms of repayment.
Current liabilities 2 698 982 1 457 025 - -
22. Trade and other payables
Trade payables 74 412 599 100 523 519 8 360 169 9 734 109
Trade payables subject to legal dispute 55 284 312 47 900 000 - -
VAT - 22 304 - -
Payroll accruals 2 984 131 2 882 580 85 000 -
Accrued subscriptions 10 544 929 1 023 098 - -
Accrued audit fees - 1 908 883 - 330 000
Operating lease payables - 178 277 - -
Deposits received - 562 749 - -
143 225 971 155 001 410 8 445 169 10 064 109
Refer to notes 11 and 14 for further information with regard to trade payables subject to legal dispute.
23. Revenue
Airtime 367 398 337 491 419 877 20 589 377 -
Telephone and managed services 10 301 637 3 873 324 - -
SMS services 4 749 703 4 055 244 - -
International airtime 925 842 2 591 010 - -
Hardware rental and sales 629 503 933 418 - -
Marketing incentive bonuses 4 849 120 7 217 430 - -
Connection incentive bonuses - 13 681 250 - -
388 854 143 523 771 553 20 589 377 -
Huge Group Limited
87
24. Cost of sales
Group Company
Figures in Rand 2012 2011 2012 2011
Airtime 256 569 433 394 740 882 20 589 377 -
International airtime 742 627 2 163 601 - -
SMS services 3 950 497 2 068 046 - -
TMS services 52 079 705 27 516 854 - -
Depreciation on routers 679 545 4 463 363 - -
Hardware rental and sales 161 001 3 151 059 - -
314 182 808 434 103 805 20 589 377 -
25. Other income
Network support fees 775 889 821 893 - -
Rental income 6 000 - - -
Sundry 643 784 - 154 886 -
Management fees paid by related parties - - 3 200 000 -
Profit on sale of property, plant and equipment - 104 556 - -
Profit on sale of investment 2 687 676 3 396 2 303 3 396
Bad debt recovered 140 484 270 870 - -Reversal of impairment of Huge Media and Eyeballs l
- - 11 732 763 -
4 253 833 1 200 715 15 087 649 3 396
26. Operating (loss)/profit
Amortisation of intangible assets 3 816 679 9 462 240 - -
Audit fees 1 104 322 2 527 827 1 064 801 910 789
Bad debt written off 2 502 345 9 879 077 - -
Depreciation of property, plant and equipment 2 476 722 6 627 307 - -
Decrease in doubtful debt allowance 1 992 794 (6 455 647) - -
Employee costs 46 860 810 63 046 335 1 291 000 1 132 000
Defined contribution expense 2 998 415 3 933 000 - -
Inventory obsolescence - 190 146 - -
Legal expenses 1 518 721 2 751 683 14 940 615 715
Loss on foreign exchange differences 10 290 5 438 - -
Operating lease charges 5 660 854 5 140 077 - -
Research and development - 493 - -
Gain on expected settlement of dispute - (4 195 308) - -
Impairment of goodwill - 97 774 - -
Impairment of Huge Media Proprietary Limited loan - - 6 242 279
Reversal of impairment of Huge Media and Eyeballs
Loans (13 288 372) - (11 732 763) -
Loss/(Profit) on sale of property, plant and equipment 1 820 745 (104 556) - -
Huge Group Limited
88
27. Investment income
Group Company
Figures in Rand 2012 2011 2012 2011
Dividends received
Joint-venture company - local 175 000 700 000 - -
Associate company – foreign 5 879 1 960 000 5 879 -
180 879 2 660 000 5 879 -
Interest income
Bank 721 758 783 319 - 418 351
Other interest received 550 191 290 577 4 808 848 5 319 127
1 271 948 1 073 896 4 808 848 5 737 478
1 452 827 3 733 896 4 814 727 5 737 478
28. Net change in fair-value of financial instruments
Fair value gain/(loss) on single stock futures contracts (1 783 148) 3 252 619 (1 712 109) 3 113 609
Fair value gain/(loss) on contracts-for-difference (879 454) 1 874 198 - -
(2 662 602) 5 126 817 (1 712 109) 3 113 609
The information disclosed above is based on information received from the bank holding the instrument.
29. (Loss)/income from equity accounted investments
Share of (losses)/income, net of dividends received 61 733 (952 298) - -
30. Finance costs
Shareholders' loans (260 637) (723 224) (38 790) (728 356)
Other interest paid (307 231) (292 412) (174) (581 502)
Bank (1 895 907) (977 859) - -
South African Revenue Service (38 068) (28 540) - -
Finance leases - (977 840) - -
(2 501 843) (2 999 875) (38 964) (1 309 858)
31. Income tax (credit)/expense
Current
Local income tax – current year 36 484 - - -
Foreign dividend tax 49 000 98 000 - -
85 484 98 000 - -
Deferred
Current year (2 298 524) (1 692 114) 831 382 607 264
Prior year overprovision - (517 631) - (1 055 974)
Movement (2 298 524) (2 209 745) 831 382 (448 710)
(2 213 040) (2 111 745) 831 382 (448 710)
Huge Group Limited
89
31. Income tax (credit)/expense (continued)
Group Company
Figures in Rand 2012 2011 2012 2011
Reconciliation of the income tax expense
Reconciliation between the applicable statutory tax rate and the average effective tax rate
Applicable statutory tax rate (%) (28.00) (28.00) 28.00 (28.00)
Exempt income 6.51 (2.52) - -
Foreign tax rates - 0.52 - -
Capital gains (3.58) - - -
Unutilised assessed loss (64.22) 33.05 - 33.07
Disallowed expenditure (1.70) (11.44) (22.22) 2.10
Change in estimate relating to prior year 1.58 (2.73) 0.00 (12.47)
Average effective tax rate (33.41) (11.12) 5.78 (5.30)
Tax losses
Tax losses available for set-off against future taxable
income 82 311 223 87 383 209 8 705 591 21 721 423
Accounted as part of deferred taxation (41 323 169) (54 936 814) (8 705 591) (11 720 904)
Tax losses not recognised 40 988 037 32 446 395 - 10 000 519
32. Earnings and headline earnings per share
2012
Gross Tax Net
Profit/(loss) attributable to ordinary equity holders of the
parent entity - (4 561 808)
Adjusted for:
Loss on disposal of property, plant and equipment 1 820 745 (509 809) 1 310 936
Profit on disposal of associate company (2 687 676) 376 275 (2 311 401)
Headline (loss)/earnings (866 931) 133 534 (5 562 273)
2011
Gross Tax Net
Profit/(loss) attributable to ordinary equity holders of the
parent entity - - (14 976 812)
Adjusted for:
Profit on disposal of property, plant and equipment (104 556) 29 276 (75 280)
Impairment of goodwill 97 774 - 97 774
Headline (loss)/earnings (6 782) 29 276 (14 954 318)
Weighted average number of ordinary shares
Issued ordinary shares at 1 March 95 900 969 102 113 074
Effect of treasury shares (1 314 688) (4 441 640)
Issued ordinary shares at 29/28 February 94 586 281 97 671 434
Huge Group Limited
90
32. Earnings and headline earnings per share (continued)
Group Company
Figures in Rand 2012 2011 2012 2011
Per share statistics
Loss per share (4.82) (15.33)
Headline loss per share (5.88) (15.31)
Diluted basic loss per share (4.82) (15.33)
Diluted headline loss per shares (5.88) (15.31)
There are no dilutive instruments, which would serve to effect the aforementioned per share statistics.
33. Auditor’s remuneration
BDO South Africa Incorporated 181 500 - 181 500 -
Horwath Leveton Boner – prior year - 910 789 - 910 789
KPMG Incorporated – prior year 758 176 1 617 038 722 381 -
939 676 2 527 827 903 881 910 789
34. Operating leases – as lessee (expense)
Minimum lease payments due
- within one year 2 224 055 2 992 621 - -
- in second to fifth year inclusive - 254 800 - -
2 224 055 3 247 421 - -
Operating lease payments represent rentals payable by the Group for certain of its office properties and office equipment. Leases are negotiated for an average term of one to five years and rentals are fixed for an average of one year. No contingent rent is payable.
Network lease commitments
- within one year 5 121 431 121 128 435 - -
- in second to fifth year inclusive 5 340 26 550 784 - -
5 126 771 147 679 219 - -
Network lease commitments represent subscriber agreements payable by the Group for access to the networks of the mobile network operators and include a limited amount of free minutes or value relating to each subscription month. Contracts are signed for 24 months.
35. Other comprehensive (loss)/income
Components of other comprehensive income – Group 2012
There are no movements through other comprehensive income for the current year.
Components of other comprehensive income – Group 2011
Movement on revaluation
Gross Tax Net
Losses on property revaluation (624 999) 140 603 (484 396)
Tax on gains and losses on property revaluation is calculated applying income tax rates and capital gains tax rates.
Huge Group Limited
91
36. Cash generated from/(utilised in) operations
Group Company
Figures in Rand Note 2012 2011 2012 2011
(Loss)/profit before tax (6 623 538) (18 986 513) 14 380 116 (8 467 762)
Adjustments for:
Depreciation and amortisation 2, 4 6 293 400 16 089 547 - -
Loss/(Profit) on sale of property, plant and equipment 1 820 745 (104 556) - -
Profit on sale of investment in associate (2 687 676) (3 396) - (3 396)
Share of earnings in joint venture company 6 (174 672)
Fair-value adjustment to carrying value of associate (393 369)
Prescription of dividends payable to shareholders 38 (14 952) (14 952)
Fair-value adjustment to carrying value of investment 9 42 426 42 426
Profit from equity accounted investments 7 516 461 952 298 - -
Liability for losses recognised - (220 000) - -
Dividends received 27 (180 879) (2 660 000) (5 879) -
Interest received 27 (1 271 948) (1 073 896) (4 808 848) (5 737 478)
Finance costs 30 2 501 843 2 999 875 38 964 1 309 858
Fair-value adjustments 28 2 662 602 (5 126 817) 1 712 109 (3 113 609)
Goodwill impairment - 97 774 -
Changes in working capital:
(Increase)/decrease in inventory 11 34 598 413 (28 924 431) (3 805 052) -
Decrease/(increase) in trade and other receivables 14 (11 849 024) 32 322 504 1 159 911 3 906 259
Decrease/(increase) in derivative margin deposits 15 1 279 046 (2 294 433) 402 275 (402 275)
Increase/(decrease) in trade and other payables 22 (11 775 439) 7 560 961 (1 618 940) 9 499 687
14 743 439 628 917 7 482 130 (3 008 716)
37. Income tax paid
Receivable at the beginning of the year 1 102 456 2 174 246 - 982 888
Current tax for the year recognised in profit or loss (49 000) (98 000) - -
Receivable at end of the year (127 920) (1 102 456) - -
925 536 973 790 - 982 888
38. Dividends paid
Balance of unpaid dividends at the beginning of the
year (14 952) (14 952) (14 952) (14 952)
Balance of unpaid dividends at the end of the year - 14 952 - 14 952
Prescribed dividends (14 952) - (14 952) -
Huge Group Limited
92
39. Related parties
Group Company
Figures in Rand 2012 2011 2012 2011
Relationships
Subsidiary companies Huge Telecom (HT)
CentraCell (CC)
Huge Media (HM)
Eyeballs (EMA)
Huge Cellular (HC) – a past subsidiary company of Huge; a current subsidiary company of HT
Ambient (AM) – a subsidiary company of HT
Legacy (LT) – a subsidiary company of HT
Joint-venture company Gonondo Telecom Proprietary Limited (GT) - a joint-venture company to HT
Associate companies MVS (MVS) - an associate company of HT
TelePassport (TC) - a Namibian associate company of HT
Shareholders Refer to shareholder analysis included under “Supplementary Information”
Non-controlling shareholders Multimatics Proprietary Limited – a joint-venture shareholder of GT
Don Cameron – an associate company shareholder of MVS
Karl Chelius – an associate company shareholder of MVS
Theofelus Mberirua – an associate company shareholder of TC
Ananias Martin – an associate company shareholder of TC
Penda Kiiyala – an associate company shareholder of TC
Gunter Hellinghausen – an associate company shareholder of TC
Anton Daniel Potgieter – an associate company shareholder of TC
Klaus Bartsch – an associate company shareholder of TC
Kukuklu Limited – a non-controlling shareholder of LT
Edward Mitchell Kerby – a non-controlling shareholder of AM
Gregory Beaufort Shiers – a non-controlling shareholder of AM
Jarrat Ingram – a non-controlling shareholder of AM
Nathan Lewin – a non-controlling shareholder of EMA
Not The Only Company Proprietary Limited – a non-controlling shareholder of EMA
Michael Ronald Beamish – a non-controlling shareholder of EMA
Huge Group Limited
93
Directors Stephen Peter Tredoux – a director of HG
Kenneth Delroy Jarvis – a director of HG
Brian Alexander McQueen – a director of HG
Michael Ronald Beamish – a director of HG and EMA
Anton Daniel Potgieter – a director of HG, HM, HC, LT and TC, a past director of HT, CC, MVS and EMA
Vincent Mokhele Mokholo – a director of HG, CC, and AM
James Charles Herbst – a director of HG, HT, HM, LT and HC, a past director of CC, EMA and MVS
Manogaran Pillay – a past director of HT, and CC
Amil Manuel Aguiar Da Moura – a director of HT
Dion David Willis – a director of HT
Geovanna Coelho Sutherland – a past director of HT
Yvette Neveling – a past director of HG and HT
Nathan Lewin – a director of EMA
Don Cameron – a director of MVS
Karl Chelius – a director of MVS
Theofelus Mberirua – a director of TC
Ananias Martin – a director of TC
Penda Kiiyala – a director of TC
Gunter Hellinghausen – a director of TC
Klaus Bartsch – a director of TC
Edward Mitchell Kerby – a director of AM
Gregory Beaufort Shiers – a director of AM
Jarrat Ingram – a director of AM
Neil Brian Wensley – a director of HG and HT
Entities controlled by directors which have transacted with a Group company Accknowledge Systems Proprietary Limited (“Accknowledge”) – a shareholder of which is James Charles Herbst
Jika Africa Consulting Proprietary Limited (“JIKA”) – a shareholder of which is Kenneth Delroy Jarvis
Huge Group Limited
94
39. Related parties (continued)
Group Company
Figures in Rand 2012 2011 2012 2011
Related party balances
Loan accounts – owing by/(to) related parties
Anton Daniel Potgieter 13 (800 550) (654 951) 179 429 (654 951)
James Charles Herbst 13 (1 868 990) - 112 576 -
CentraCell 8 - - 3 871 289 6 444 703
Huge Telecom 8 - - (51 086 755) (42 542 212)
Huge Media 8 - - 6 694 906 -
Eyeballs 8 - - 20 085 518 13 731 598
TelePassport 21 1 664 283 (1 212 057) - -
MVS 12 199 958 1 779 083 - -
Huge Cellular 8 - - 1 509 000 (100)
Kukuklu Limited 21 - (206 316) - -
GB Shiers 21 (167 331) (273 142) - -
J Ingram 21 (173 424) (273 142) - -
EM Kirby 21 (390 378) (356 811) - -
Michael Ronald Beamish (The Benson Trust – development loan – 2011)
13(106 754) (102 036) - -
Not The Only Company Proprietary Limited (The 59 Kloofnek Trust – development loan – 2011)
21(106 754) (102 036) - -
The Nash Lewin Trust – development loan 21 (106 754) (102 036) - -
Michael Ronald beamish (The Benson Trust – 2011) 13 (75 090) (71 711) - -
The 59 Kloofnek Trust (Not The Only Company Proprietary Limited)
21(75 090) (71 711) - -
The Nash Lewin Trust 21 (14 969) (71 711) - -
Amounts included in trade payables relating to related parties
Gonondo (148 893) (191 926) - -
MVS (679 125) (222 394) - -
Accknowledge (11 115) (27 371) - -
Investment in joint-venture company (note 6)
Gonondo 6 562 230 387 558 -
Investment in associate company (note 7)
TelePassport 7 - 1 811 107 - -
MVS 7 (736 461) (220 000) - -
Huge Group Limited
95
39. Related parties (continued)
Group Company
Figures in Rand 2012 2011 2012 2011
Investment in subsidiary companies (note 5)
Huge Telecom 5 - - 127 998 784 127 998 784
CentraCell 5 - - 107 100 453 107 100 453
Huge Media 5 - - 100 100
Huge Cellular 5 - - - 100
Eyeballs 5 - - 6 000 000 6 000 000
Related party transactions
Interest paid to/(received from) related parties
Anton Daniel Potgieter 13 (28 775) 651 799 (28 775) 651 799
James Charles Herbst 13 9 870 71 425 - 76 557
Huge Media - - (48 183) 261 011
CentraCell - - (4 383 814) (3 296 935)
Huge Telecom - - (175 856) 261 863
Eyeballs - - (148 404) 1 400 975
MVS (71 855) (131 258) - (129 337)
Kukuklu Limited - 3 622 - -
EM Kerby 33 567 18 516 - -
GB Shiers 19 753 14 175 - -
J Ingram 22 282 14 175 - -
Michael Ronald Beamish – development loan 4 718
Not The Only Company Proprietary Limited – development loan
4 718
The Nash Lewin Trust – development loan 4 718
Michael Ronald Beamish 3 319
Not The Only Company Proprietary Limited 3 319
The Nash Lewin Trust 3 197
Purchases from/(sales to) related parties
Gonondo 2 028 043 2 226 350 - -
Huge Group 24 (20 589 377) - (20 589 377) -
Accknowledge 430 305 235 281 - -
Ambient 4 739 339 1 350 065 - -
Huge Telecom 13 410 430 (3 811 696) 20 589 377 -
CentraCell 12 865 535 - - -
Huge Cellular (12 865 535) - - -
Luigi’s Trust (4 900 000) - - -
Option premium on purchase of call options
Amil Manuel Aguiar Da Moura 241 228 87 719 - -
Barend Jacobus Vorster - 87 719 - -
Dion David Willis 241 228 87 719 - -
Eugene Volschenk - 87 719 - -
Gregory Wayne Wright - 87 719 - -
Manogaran Pillay 241 228 87 719 - -
Michelle Allison Meth - 87 719 - -
Vincent Mokhele Mokholo - 87 719 - -
Huge Group Limited
96
39. Related parties (continued)
Group Company
Figures in Rand 2012 2011 2012 2011
Network support fees received from related parties
TelePassport (688 540) (821 893) - -
Management fees received from related parties
CentraCell 25 - - - (1 666 974)
Huge Telecom 25 - - (3 200 000) (5 858 344)
Eyeballs 25 - - - (229 804)
Huge Media 25 - - - (180 169)
Dividends received from related parties
Gonondo 6 175 000 700 000 - -
TelePassport - 1 960 000 - -
Share of earnings/(losses)
Gonondo 6 (174 672) (152 733) - -
TelePassport 7 359 557 (561 625) - -
MVS 7 (516 461) (277 940) - -
Commission paid to related party
MVS 900 000 2 472 534 - -
Compensation to directors and other key management
Short-term employee benefits - 13 621 661 - -
40. Directors’ emoluments
2012
Executive
Basic salary/ Performance Medical aid Provident Total
fees bonus fund
James Charles Herbst 1 987 926 2 630 000 77 286 146 394 4 841 607
Vincent Mokhele Mokholo 378 875 - - - 378 875
Manogaran Pillay** 1 262 076 66 377 54 180 111 666 1 494 298
Yvette Neveling 173 355 - 7 974 15 605 196 934
Neil Brian Wensley**** 686 310 - 42 651 61 971 790 932
Total 4 488 542 2 696 377 182 091 335 635 7 702 645
2011
Executive
Basic salary/ Performance Medical aid Provident Total
fees bonus fund
James Charles Herbst 1 523 487 - 68 668 107 458 1 699 613
Anton Daniel Potgieter*** 1 820 916 380 516 39 066 164 703 2 405 201
Vincent Mokhele Mokholo 1 047 153 - - 85 318 1 132 471
Manogaran Pillay** 1 036 975 60 000 - 96 228 1 193 203
Yvette Neveling^^^ 121 614 32 011 7 489 11 966 173 080
Michelle Allison Meth* 741 128 - - 64 152 805 280
Total 6 291 273 472 527 115 223 529 825 7 408 848
Huge Group Limited
97
40. Directors’ emoluments (continued)
Group Company
Figures in Rand 2012 2011 2012 2011
The emoluments were paid to the directors by subsidiary companies, with the exception of Anton Daniel Potgieter who was remunerated by the Company.
2012
Non-executive
Basic salary/ Performance Medical aid Provident Total
fees bonus fund
Michael Ronald Beamish 230 000 - - - 230 000
Kenneth Delroy Jarvis 223 000 - - - 223 000
Anton Daniel Potgieter 225 000 - - - 225 000
Brian Alexander McQueen 253 000 - - - 253 000
Stephen Peter Tredoux 360 000 - - - 360 000
Total 1 291 000 - - - 1 291 000
The emoluments were paid to the directors by subsidiary companies.
2011
Non-executive
Basic salary/ Performance Medical aid Provident Total
fees bonus fund
Brian Alexander McQueen 267 250 - - - 267 250
Kenneth Delroy Jarvis 245 000 - - - 245 000
Donovan Tredoux^^ 211 000 - - - 211 000
Stephen Peter Tredoux^ 254 750 - - - 254 750
Michael Ronald Beamish 195 000 - - - 195 000
1 173 000 - - - 1 173 000
The emoluments were paid to the directors by the Company.
Changes to directors
* Mrs Michelle Allison Meth resigned as a director of the Company on 22 October 2010.
** Mr Manogaran (Rajen) Pillay resigned as a director of the Company on 4 August 2010, and resigned as a director of Huge Telecom on 28 February 2012.
*** Mr Anton Daniel Potgieter resigned from his office as executive chairperson of the Company on 6 October 2010. The role of Mr Potgieter changed from that of executive director to non-executive director with effect from 1 April 2011.
**** Mr Neil Brian Wensley was appointed as Financial Director of the Company on 1 August 2011
^ Mr Stephen Peter Tredoux was appointed to the office of non-executive chairman of the Company on 6 October 2010.
^^ Mr Donovan Tredoux resigned as a director of the Company on 8 December 2010.
^^^ Miss Yvette Neveling was appointed as the acting Financial Director of the Company on 6 December 2010 and resigned on 31 May 2011.
Huge Group Limited
98
41. Comparative figures
Group Company
Figures in Rand 2012 2011 2012 2011
Where required to provide more accurate presentation and disclosure in terms of IFRS, limited comparative information has been regrouped. This has no impact on the statements of financial position or income statements for the current or prior year.
Effect of reclassification of comparatives – property, plant and equipment – Group 2012
Note Prior year Current year Difference
Disclosure Disclosure -
Plant and equipment 2 - 169 462 (169 462)
Furniture and fittings 2 684 847 515 385 169 462
In the prior year plant and equipment was classified as part of furniture and fittings as it was not material. These items have been reclassified to plant and equipment in the current year.
Effect of reclassification of comparatives – intangible assets – Group 2012
Note Prior year Current year Difference
Disclosure Disclosure -
Trademarks and other rights 4 244 405 99 503 144 902
Customer base and patents 4 100 353 245 255 (144 902)
In the prior year patents were classified as part of trademarks and other rights as it was not material. These items have been reclassified to customer base and patents in the current year.
Effect of reclassification of comparatives – investment in associates – Group 2012
Note Prior year Current year Difference
Disclosure Disclosure -
Managed Voice Solutions (non-current liabilities) 7 - (220 000) 220 000
Trade and other payables 22 (155 221 410) 155 001 410) (220 000)
In the prior year the investment in Managed Voice Solutions was classified as part of trade and other payables as it was not material. This item has been reclassified to investment in associates in the current year.
Effect of reclassification of comparatives – trade and other receivables – Group 2012
Note Prior year Current year Difference
Disclosure Disclosure -
Derivative margin deposits 15 - 8 554 970 (8 554 970)
Trade and other receivables 14 78 041 833 69 486 863 8 554 970
In the prior year derivative margin deposits were classified as part of trade and other receivables. These items have been reclassified correctly to derivative margin deposits in the current year.
42. Risk management
The Group is exposed to various risks in relation to financial instruments. The Group’s financial assets and financial liabilities by category are summarised in the accounting policies for financial instruments. The main types of risk are market risk, credit risk and liquidity risk.
The Group’s management of risk is co-ordinated in close co-operation with the Board and the Combined Audit and Risk Committee (“CARC”) of the Huge.
The Board has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Board of Huge has established the CARC, which is responsible for developing and monitoring the Group’s risk management policies. The committee reports regularly to the Board of Huge on its activities.
Huge Group Limited
99
42. Risk management (continued)
Group Company
Figures in Rand 2012 2011 2012 2011
The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.
The Group’s Combined Audit and Risk Committee oversees how management of the Group monitors compliance with the Group’s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Group.
The Group’s focus is on actively securing the Group’s short and medium term cash flows by minimising exposure to risk. Long-term financial investments are managed to generate lasting returns.
The most significant risks to which the Group is exposed are described below. The Group is exposed to market risk through its use of financial instruments and specifically to price risk, interest rate risk and to a lesser extent currency risk, which results from both its operating and investing activities.
42.1. Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings in financial instruments. Market risk is managed on a group basis. The objective of market risk management is to manage and control market risk exposure within acceptable parameters, while optimising returns.
The Group is exposed to equity price risk in respect of listed equity shares and derivatives as a result of the investment in Huge Group Limited ordinary par value shares and its investment in single stock future contracts and contracts for difference over its own equity.
42.1.1. Equity price risk
The single stock futures (SSF) contracts and contracts for difference (CFDs) are classified as held-for-trading with the fair-value movement passing through profit and loss.
The investments in listed equity securities and derivative instruments, including single stock futures (SSF) contracts and contracts for difference (CFDs), are considered strategic investments whose main objective is to provide the Company with various options. These options include, but are not limited to, the option to acquire the Company’s own equity shares in the future, an alternative way of raising cash, the creation of a hedge against an increasing share price, the taking advantage of the difference between the cost of equity and the cost of debt without an initial cash outlay.
If on 29 February 2012, the price at which the underlying instrument with regard to the SSFs had traded at 10 cents per share lower or higher, the impact on the derivative margin deposit would have been R840 470 lower or higher.
If on 29 February 2012, the price at which the underlying instrument with regard to the CFDs had traded at 10 cents per share lower or higher, the impact on the derivative margin deposit would have been R390 458 lower or higher.
42.1.2. Interest rate risk
The Group’s interest rate risk arises from long-term borrowings. Long-term borrowings issued at variable rates expose the Group to cash flow interest rate risk.
At 29 February 2012, if interest rates on Rand-denominated borrowings had been 1% higher/lower, with all other variables held constant, post-tax profit for the year would have been R109 659 (2011: R 13 867) lower/higher.
Huge Group Limited
100
42. Risk management (continued)
Group Company
Figures in Rand 2012 2011 2012 2011
Variable interest rate instruments
Financial assets
Loan to associate company 12 199 958 1 779 083 - -
Cash and cash equivalents 16 17 373 315 11 933 887 6 530 855 7 458 078
Loan to shareholder 13 - - 292 005 -
Financial liabilities
Loans from shareholders 13 (2 669 540) (654 951) - (654 951)
Loans from associate companies 12 - (1 212 057) - -
Other financial liabilities 21 (2 880 826) (1 630 832) - -
Finance leases 20 (739 570) (4 113 233) - -
Bank overdraft 16 (17 361 308) (21 955 871) - -
(6 077 971) 15 853 974 6 822 860 6 803 127
42.1.3. Currency risk
Most of the Group’s transactions are carried out in Rands. Exposure to currency exchange rates arises from the Group’s overseas purchases of international voice termination, which are predominantly in US dollars and Euros, and the network support fees received from its associate company in Namibia.
The Group does not enter into forward exchange contracts to mitigate the exposure to foreign currency risk on the Group’s foreign purchases as the value of the purchases is limited and immaterial. Should the value of the purchases increase significantly, forward exchange contracts will be used to mitigate the risk of currency fluctuations.
A sensitivity analysis on the exchange rate increasing or decreasing was not performed as the changes would be immaterial.
42.2. Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers, cash and cash equivalents and investment securities.
The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer and is managed on a Group basis.
Financial assets exposed to credit risk at year-end were as follows:
Financial Instrument
Investments 9 263 159 305 585 263 159 305 585
Loans to associate companies 12 199 958 1 779 083 - -
Loans to subsidiary companies 8 - - 32 160 714 20 176 301
Trade receivables 14 34 602 091 56 577 544 117 631 -
Single stock futures (SSF) contracts 15 2 815 925 3 361 880 2 815 925 3 218 200
Contracts for difference (CFDs) 15 4 459 999 5 193 090 - -
Cash and cash equivalents 16 17 373 315 11 933 887 6 530 855 7 458 078
Total 59 714 447 79 151 069 41 888 283 31 158 164
The Group continuously monitors the potential default by its customers and other counterparties, identified either individually or as a group and incorporates this information into its credit risk controls.
External credit ratings and/or reports on customers and counterparties are obtained and used. The Group’s policy is to deal only with suitably creditworthy counterparties. Average debtors’ terms are 30 days. Interest is charged on overdue customer accounts.
The Group establishes an allowance for impairment of debtors’ balances that represents its estimate of potential losses in respect of trade and other receivables and investments. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that may be incurred but not yet identified. The collective loss allowance is determined based on the historical data of payment statistics for similar financial assets.
Huge Group Limited
101
42. Risk management (continued)
Group Company
Figures in Rand 2012 2011 2012 2011
2012 2011
Gross Impairment Trade Gross Impairment Trade
allowance receivables allowance receivables
after After
impairment impairment
allowance allowance
Not past due date 21 684 783 (31 719) 21 653 064 49 680 657 - 49 680 657
30 days past due date 1 487 730 (23 367) 1 464 363 2 661 918 (262 433) 2 399 485
60 days past due date 2 196 346 - 2 196 346 544 502 (91 076) 453 426
90 days past due date 3 007 450 (47 797) 2 959 653 791 341 (247 495) 543 846
120+ days past due date 9 023 494 (3 250 669) 5 772 825 8 288 787 (4 788 657) 3 500 130
37 399 804 (3 353 552) 34 046 252 61 967 205 (5 389 661) 56 577 544
The Group’s management considers that all the above financial assets, which are not impaired or past their due date, for each of the reporting dates under review, are of good credit quality.
Opening balance 5 389 661 11 845 308 - -
Provision raised during the year 570 544 - - -
Reversed provision (772 880) - - -
Utilised provision (1 833 733) (6 455 647) - -
Closing balance 3 353 552 5 389 661 - -
The decrease of the impairment allowance has been included in operating expenses in the income statement. The Group is not exposed to any significant credit risk for any single counterparty or any group of counterparties having similar characteristics. Trade receivables consist of a large number of customers in various industries and geographical areas.
The credit risk for cash and cash equivalents and margin deposits on single stock futures (SSF) contracts and contracts-for-difference (CFDs) are considered negligible, since the counterparties are reputable banks with high quality credit ratings.
42.3. Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close-out market positions. Due to the dynamic nature of the underlying businesses, group treasury maintains flexibility in funding by maintaining availability under committed credit lines.
The Group’s risk to liquidity is a function of the funds available to cover future commitments. The Group manages liquidity risk through an on-going review of future commitments and credit facilities.
The Group manages its liquidity needs by carefully monitoring scheduled debt servicing payments for long-term financial liabilities as well as forecasting cash inflows and outflows on a day-to-day basis. Liquidity needs are monitored in various time bands, on a day-to-day and week-to-week basis as well as on the basis of a rolling 30-day projection. Long-term liquidity needs for a 180-day and a 360-day outlook period are identified monthly. Net cash requirements are compared to available borrowing facilities in order to determine headroom or shortfalls. This analysis indicates whether available borrowing facilities are expected to be sufficient over the outlook period.
In order to meet its liquidity requirement for 30-day periods referred to above the Group maintains cash balances at applicable levels. Funding for long-term liquidity needs is secured by an adequate amount of committed credit facilities, the ability to sell long-term financial assets and the committed loans, if required, from certain shareholders. Refer to the directors’ report.
Huge Group Limited
102
42. Risk management (continued)
Group Company
Figures in Rand 2012 2011 2012 2011
Group – Maturities are summarised as follows for 2012:
Carrying Contractual Within Between Between No fixed
value cash flow 6 months 6 and 12 1 and 5 Terms
months years
Trade and other payables 143 225 971 143 225 971 87 941 659 55 284 312 - -
Finance lease obligations 739 571 739 571 - 294 020 445 550 -
Other financial liabilities 2 880 826 - - - - 2 880 826
Shareholders for dividends - - - - - -
Loans from associates - - - - - -
Loans from shareholders 2 669 540 - - 2 669 540 - -
Bank overdraft 17 361 308 17 361 308 17 361 308 - - -
Total 166 877 215 161 326 849 105 302 966 58 247 873 445 550 2 880 826
Group – Maturities are summarised as follows for 2011:
Carrying Contractual Within Between Between No fixed
value cash flow 6 months 6 and 12 1 and 5 Terms
months years
Trade and other payables 155 221 410 155 221 410 155 221 410 - - -
Finance lease obligations 4 113 233 4 492 184 3 090 796 922 554 478 834 -
Other financial liabilities 1 630 832 1 630 832 - - - 1 630 832
Shareholders for dividends 14 952 14 952 14 952 - - -
Loans from associates 1 212 057 1 212 057 - 1 212 057 - -
Loans from shareholders 654 951 654 951 - 654 951 - -
Bank overdraft 21 955 871 21 955 871 21 955 871 - - -
Total 184 803 306 185 182 257 180 182 257 2 789 562 478 834 1 630 832
Company – Maturities are summarised as follows for 2012:
Carrying Contractual Within Between Between No fixed
value cash flow 6 months 6 and 12 1 and 5 Terms
months years
Trade and other payables 8 445 169 8 445 169 8 445 169 - - -
Loans from shareholders - - - - - -
Shareholders for dividends - - - - - -
Loans from subsidiary - - - - - -
companies 51 086 755 51 086 755 - - - 51 086 755
Total 59 531 924 59 531 924 8 445 169 - - 51 086 755
Company – Maturities are summarised as follows for 2011:
Carrying Contractual Within Between Between No fixed
value cash flow 6 months 6 and 12 1 and 5 Terms
months years
Trade and other payables 10 064 109 10 064 109 10 064 109 - - -
Loans from shareholders 654 951 654 951 - 654 951 - -
Shareholders for dividends 14 952 14 952 14 952 - - -
Loans from subsidiary
companies 42 542 312 42 542 312 - - - 42 542 312
Total 53 276 324 53 276 324 10 079 061 654 951 - 42 542 312
Huge Group Limited
103
42.4 Classes of financial liabilities – at amortised cost
Group Company
Figures in Rand 2012 2011 2012 2011
Carrying Carrying Carrying Carrying
amount amount Amount amount
Loans from shareholders 2 669 540 654 951 - 654 951
Trade and other payables 143 225 971 155 001 410 8 445 169 10 064 109
Loans from subsidiary companies - - 51 086 755 42 542 312
Bank overdraft 17 361 308 21 955 871 - -
Shareholders for dividends - 14 952 - 14 952
Finance lease obligations 739 571 4 113 233 -
Loans from associate companies - 1 212 057 -
Other financial liabilities 2 880 826 1 630 832 -
Total 166 877 216 184 583 306 59 531 924 53 276 324
42.5 Classes of financial assets
Held-for-trading – at fair-value
Investments – Jasco Limited 263 159 305 585 263 159 305 585
Single stock futures (SSF) contracts 2 815 925 3 361 880 2 815 925 3 218 200
Contracts-for-difference (CFDs) 4 459 999 5 193 090 - -
Total 7 539 083 8 860 555 3 079 084 3 523 785
Loans and receivables
Trade and other receivables 81 335 887 56 577 544 119 248 -
Loans to associate companies 199 958 1 779 083 - -
Cash and cash equivalents 17 373 316 11 933 887 6 530 855 7 458 078
Total 98 909 161 70 290 514 6 650 103 7 458 078
The carrying amount approximates the fair-value of the classes of financial assets and liabilities referred to above.
42.6 Valuation method of held-for-trading financial assets stated at fair value
The table below analyses the financial instruments by valuation method. The different levels are defined as follows:
Level 1: quoted prices in active markets for identical assets or liabilities;
Level 2: inputs other than quoted prices included within level 1 that are observed for the asset and liability, either directly or indirectly;
Level 3: inputs for the asset or liability that are not based on observable market data.
2012
Level 1 Level 2 Level 3 Total
Investments 263 159 - - 263 159
Single stock futures (SSF) contracts - 2 815 925 - 2 815 925
Contracts-for-difference (CFDs) - 4 459 999 - 4 459 999
263 359 7 275 924 - 7 539 283
2011
Level 1 Level 2 Level 3 Total
Investments 305 585 - - 305 585
Single stock futures (SSF) contracts - 3 361 880 - 3 361 880
Contracts-for-difference (CFDs) - 5 193 090 - 5 193 090
305 585 8 554 970 - 8 860 555
Huge Group Limited
104
42.7 Operational risk
Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Group's processes, personnel, technology and infrastructure and from external factors other than credit, market and liquidity risks, such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour.
Operational risks arise from all of the Group's operations. The Group's objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Group's reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity.
The primary responsibility for the development and implementation of controls to address operational risks is assigned to senior management personnel within each business unit. This responsibility is supported by the development of overall Group standards for the management of operational risk in the following areas:
requirements for appropriate segregation of duties, including the independent authorisation of transactions;
requirements for the reconciliation and monitoring of transactions;
compliance with regulatory and other legal requirements;
documentation of controls and procedures;
requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to address the risks identified;
requirements for the reporting of operational losses and proposed remedial action;
development of contingency plans;
training and professional development;
ethical and business standards; and
risk mitigation, including insurance where this is effective.
42.8 Fair-value of financial instruments
The carrying amounts of trade and other receivables, loans receivable, cash and cash equivalents, current and non-current liabilities, trade and other payables, derivative assets and liabilities reported in the statement of financial position approximate their fair-value.
43. Derivative instrument set-off
Group Company
Figures in Rand 2012 2011 2012 2011
Cumulative mark-to-market movement on single stock
futures (SSF) contracts (23 471 640) (21 688 492) (5 356 720) (3 644 611)
Cumulative mark-to-market on movement contracts-for-
difference (CFDs) (9 620 393) (8 740 939) - -
Cumulative mark-to-market movement on derivatives (33 092 033) (30 429 431) (5 356 720) (3 644 611)
Paid to Standard Bank of South Africa Limited (23 471 640) (21 688 492) (5 356 720) (3 644 611)
Paid to Nedbank Limited (9 620 393) (8 740 939) - -
Cumulative variation margin payments for the year (33 092 033) (30 429 431) (5 356 720) (3 644 611)
Variation margin payments have been set-off derivative liabilities as the Company has the legal right to set-off and intends to set-off on expiry of the contracts. Margin deposits on the single stock futures (SSF) contracts and contracts-for-difference (CFDs) have been shown in accounts receivable as deposits.
Huge Group Limited
105
44. Acquisition of subsidiary companies
2012
No acquisitions were effected during the financial year ended 29 February 2012.
2011
With effect from 1 August 2010, Huge Telecom acquired a 50.2% interest in Ambient and a 50.3% interest in Legacy. These businesses operate in the telecoms industry.
Name of company Held by Note % % Carrying Carrying
Holding holding amount amount
2012 2011 2012 2011
Ambient Huge Telecom 50.2 50.2 502 502
Legacy Huge Telecom 50.3 50.3 151 151
653 653
The fair-values of the acquired assets and liabilities recognised at the date of acquisition equals the carrying amounts immediately prior to the business combination and are presented in the following table:
Huge Group Limited
106
44. Acquisition of subsidiary companies (continued)
Group Company
Figures in Rand 2012 2011 2012 2011
Pre-acquisition Total
carrying amount recognized
Legacy Ambient value on
acquisition
(R) (R) (R)
Assets
Property, plant and equipment - 53 465 53 465
Intangible assets - 199 440 199 440
Deferred taxation - 162 357 162 357
Cash and cash equivalents 300 4 869 5 169
Liabilities
Trade and other payables - (613 900) (613 900)
Net asset value 300 (193 769) (193 469)
Less: non-controlling interest (149) 96 497 96 348
Fair-value of net assets/(liabilities) acquired 151 (97 272) (97 121)
Total cost of investment (151) (502) (653)
Goodwill - (97 774) (97 774)
Investment on acquisition 151 (97 272) (97 121)
Impairment of investment (151) - (151)
Impairment of goodwill - 97 774 97 774
Investment - 502 502
In determining the fair-values, management has applied the guidance provided in IFRS 3: Business Combinations. The carrying value approximates the fair-value at acquisition date.
Non-controlling interests was measured based on their proportionate interest in the recognised amounts of the assets and liabilities of the acquiree.
In determining the goodwill arising from the business combination after adjusting for the fair-value of the acquired assets, liabilities and contingent liabilities, management concluded that the cost exceeded the net fair-value of the business combination. This resulted in goodwill which was impaired immediately in profit or loss due to the start-up and loss making positions of the subsidiary companies on acquisition.
45. 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 and Centracell) and Electronic Media (including 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/development phase of its business and as such minimal revenue is reported. The lines of revenue were disclosed separately in the prior year’s annual financial statements relating only to the Managed Telecommunications grouping. Additional focus has been placed on operating expenses in the year and as such the information provided to the Group’s CEO has been more extensive in the current year. The revenue lines are distributed countrywide to all clients. The results and the abbreviated income statement relating to the Namibian operation is reflected in note 7.
Huge Group Limited
107
45. Segmental reporting (continued)
Group Company
Figures in Rand 2012 2011 2012 2011
2012
Managed Electronic Corporate Total
Telecom- Media Office
munications Grouping
Grouping
Total revenue 388 514 962 339 181 - 388 514 143
Cost of sales (314 127 929) (54 878) - (314 182 808)
Gross profit 74 387 033 284 303 - 74 671 335
Other income 4 025 111 73 835 154 886 4 253 833
Operating expenses (72 563 093) (3 929 340) (5 406 388) (81 898 821)
Operating profit/(loss) 5 849 051 (3 571 202) (5 251 501) (2 973 652)
Investment income 1 021 915 - 430 912 1 452 827
Net change in fair-value of financial instruments (950 493) - (1 712 109) (2 662 602)
Profit from equity accounted investments 61 733 - - 61 733
Finance costs (2 239 058) (223 821) (38 964) (2 501 843)
Profit/(loss) before income tax 3 743 148 (3 795 023) (6 571 663) (6 623 538)
Income tax 2 496 025 548 396 (831 382) 2 213 040
Profit/(loss) after income tax 6 239 174 (3 246 627) (7 403 045) (4 410 498)
2011
Managed Electronic Corporate Total
Telecom- Media Office
munications Grouping
Grouping
Total revenue 523 548 980 222 573 - 523 771 553
Cost of sales (433 907 467) (196 338) - (434 103 805)
Gross profit 89 641 513 26 235 - 89 667 748
Other income 1 197 320 - 3 395 1 200 715
Operating expenses (95 853 010) (8 562 292) (10 348 214) (114 763 516)
Operating loss (5 014 177) (8 536 057) (10 344 819) (23 895 053)
Investment income 3 061 164 11 818 660 914 3 733 896
Net change in fair-value of financial instruments 2 013 208 - 3 113 609 5 126 817
Loss from equity accounted investments (952 298) - - (952 298)
Finance costs (2 114 966) (155 832) (729 077) (2 999 875)
Loss before income tax (3 007 069) (8 680 071) (7 299 373) (18 986 513)
Income tax 715 212 - 1 396 533 2 111 745
Loss after income tax (2 291 857) (8 680 071) (5 902 840) (16 874 768)
Huge Group Limited
108
45. Segmental reporting (continued)
2012
Assets and liabilities Managed Electronic Corporate Total
Telecom- Media Office
munications Grouping
Grouping
Non-current assets 261 228 962 12 725 124 2 700 673 276 654 760
Current assets 102 021 368 208 480 13 271 080 115 500 928
363 250 330 12 933 604 15 971 754 392 155 688
Non-current liabilities (1 182 011) (1 798 081) - (2 980 092)
Current liabilities (141 594 315) (603 684) (24 270 148) (166 468 146)
(142 776 326) (2 401 764) (24 270 148) (169 448 239)
The total assets and liabilities of each reportable segment are not regularly provided to the Chief Operating Decision Maker. The Chief Operating Decision Maker reviews the Group statement of financial position.
The Company provides the central corporate office function.
There are no customers in any segment of the Group to whom sales equal or exceed ten per cent of total revenue. There is no inter-segment revenue.
46. New Standards and Interpretations
At the date of authorisation of the financial statements of the Group for the year ended 29 February 2012, the following Standards and Interpretations were in issue but not yet effective:
IFRS 9 (2009) Financial Instruments Annual periods beginning on or after 1 January 2013
IFRS 9 (2010) Financial Instruments Annual periods beginning on or after 1 January 2013
IFRS 10 Consolidated Financial Statements Annual periods beginning on or after 1 January 2013
IFRS 11 Joint Arrangements Annual periods beginning on or after 1 January 2013
IFRS 13 Fair Value Measurements Annual periods beginning on or after 1 January 2013
IAS 1 amendment Presentation of Financial Statements: Presentation of Items of Other Comprehensive Income
Annual periods beginning on or after 1 July 2012
IAS 12 amendment Deferred tax: Recovery of Underlying Assets Annual periods beginning on or after 1 January 2012
IAS 19 amendments Employee Benefits: Defined benefit plans Annual periods beginning on or after 1 January 2013
IAS 27 Separate Financial Statements (2011) Annual periods beginning on or after 1 January 2013
IAS 28 Investments in Associates and Joint Ventures (2011) Annual periods beginning on or after 1 January 2013
Huge Group Limited
109
45. New Standards and Interpretations (continued)
All Standards and Interpretations will be adopted at their effective date (except for those Standards and Interpretations that are not applicable to the entity). None of these is expected to have a significant effect on the consolidated financial statements of the Group, except for IFRS 9 Financial Instruments, IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interests in Other Entities, IFRS 13 Fair Value Measurement and IAS 28 Investments in Associates and Joint Ventures (2011) which becomes mandatory for the consolidated financial statements beginning on 1 March 2013.
IFRS 9 (2009) Financial Instruments
The standard will be applied retrospectively, subject to transitional provisions.
IFRS 9 (2009) addresses the initial measurement and classification of financial assets and will replace the relevant sections of IAS 39.
Under IFRS 9 (2009) there are two options in respect of classification of financial assets, namely, financial assets measured at amortised cost or at fair-value. Financial assets are measured at amortised cost when the business model is to hold assets in order to collect contractual cash flows and when they give rise to cash flows that are solely payments of principal and interest on the principal outstanding. All other financial assets are measured at fair-value. Embedded derivatives are no longer separated from hybrid contracts that have a financial asset host.
The extent of the impact is uncertain and has not yet been determined.
IFRS 9 (2010) Financial Instruments
The standard will be applied retrospectively, subject to transitional provisions.
IFRS 9 (2010) addresses the measurement and classification of financial liabilities and will replace the relevant sections of IAS 39.
Under IFRS 9 (2010), the classification and measurement requirements of financial liabilities are the same as per IAS 39, except for the following two aspects:
Fair-value changes for financial liabilities (other than financial guarantees and loan commitments) designated at fair-value through profit or loss that is attributable to the changes in the credit risk of the liability will be presented in other comprehensive income (OCI). The remaining amount of the fair-value change is recognised in profit or loss. However, if this requirement creates or enlarges an accounting mismatch in profit or loss, then the whole fair-value change is presented in profit or loss. The determination as to whether such presentation would create or enlarge an accounting mismatch is made on initial recognition and is not subsequently reassessed.
Under IFRS 9 (2010) derivative liabilities that are linked to, and must be settled by, delivery of an unquoted equity instrument whose fair-value cannot be reliably measured, are measured at fair-value.
IFRS 9 (2010) incorporates the guidance in IAS 39 dealing with fair-value measurement and accounting for derivatives embedded in a host contract that is not a financial asset, as well as the requirements of IFRIC 9 Reassessment of Embedded Derivatives.
The extent of the impact is uncertain and has not been determined.
IFRS 10 Consolidated Financial Statements
The standard will be applied retrospectively if there is a change in the control conclusion between IAS 27/SIC 12 and IFRS 10.
IFRS 10 introduces a single control model to assess whether an investee should be consolidated. This control model requires entities to perform the following in determining whether control exists:
Identify how decisions about the relevant activities are made;
Assess whether the entity has power over the relevant activities by considering only the entity’s substantive rights;
Assess whether the entity is exposed to variability in returns; and
Assess whether the entity is able to use its power over the investee to affect returns for its own benefit.
Control should be assessed on a continuous basis and should be reassessed as facts and circumstances change.
The extent of the impact is uncertain and has not yet been determined.
Huge Group Limited
110
45. New Standards and Interpretations (continued)
IFRS 11 Joint Arrangements
The standard will be applied retrospectively, subject to certain transitional provisions.
IFRS 11 establishes that classification of the joint arrangement depends on whether parties have rights from, and obligations for, the underlying assets and liabilities.
According to IFRS 11, joint arrangements are divided into two types, each having its own accounting model:
Joint operations whereby the jointly controlling parties, known as joint operators, have rights and obligations for the liabilities relating to the arrangement.
Joint ventures whereby the joint controlling parties, known as joint venturers, have rights to the net assets of the arrangement.
In terms of IFRS 11, all joint ventures will have to be equity accounted. This is consistent with the current treatment of joint ventures.
The extent of any other impact is uncertain and has not been determined.
IFRS 13 Fair Value Measurement
The standard will be applied prospectively and comparatives will not be restated.
IFRS 13 introduces a single source of guidance on fair-value measurement for both financial and non-financial assets and liabilities by defining fair- value, establishing a framework for measuring fair-value and setting out disclosures requirements for fair-value measurements. The key principles in IFRS 13 are as follows:
Fair-value is an exit price;
Measurement considers characteristics of the asset or liability and not entity specific characteristics;
Measurement assumes a transaction in the entity’s principle (or most advantageous) market between market participants;
Price is not adjusted for transaction costs;
Measurement maximises the use of relevant observable inputs and minimises the use of unobservable inputs;
The three level fair-value hierarchy is extended to all fair-value measurements.
The extent of the impact is uncertain and has not been determined.
IAS 28 (2011) Investments in Associates and Joint Ventures
IAS 28 (2011) supersedes IAS 28 (2008) and carries forward the existing accounting and disclosure requirements with limited amendments. These include:
IFRS 5 is applicable to an investment, or a portion of an investment, in an associate or a joint venture that meets the criteria to be classified as held-for-sale; and
On cessation of significant influence or joint control, even if an investment in an associate becomes an investment in a joint venture or vice versa, the company does not re-measure the retained interest.
The extent of the impact is uncertain and has not been determined.
Huge Group Limited
111
Supplementary information – Shareholder analysis
1. Shareholder analysis - 2012
Number of Number of %
Shareholders shares shareholding
Public 304 32 842 298 31.12
Non-public 21 72 705 597 68.88
325 105 547 895 100
2. Non-public shareholder analysis - 2012
Number of Number of
Shareholders shares
Directors of Huge Group Limited 6 32 298 180
Non-beneficial indirect holdings relating to directors of
Huge Group Limited 1 10 104 274
Directors of Huge Telecom Proprietary Limited 5 2 543 122
Holdings underlying derivative instruments 1 12 373 743
Treasury shares 2 15 306 278
Holdings of Designated Advisor 1 80 000
21 72 705 597
3. Major shareholders - 2012
Number of %
shares shareholding
Mojaho Trading Proprietary Limited* 12 630 343 11.97
Nedgroup Securities Proprietary Limited** 12 393 489 11.74
Huge Telecom Proprietary Limited 9 646 926 9.14
Pacific Breeze Trading Proprietary Limited^ 6 432 200 6.09
Praesidium Family Trust # 6 284 300 5.95
Anton Daniel Potgieter 6 163 400 5.84
Huge Group Limited 5 659 352 5.36 * VM Mokholo is a 20% shareholder in Mojaho Trading Proprietary Limited. ** Held as a hedge for short positions in contracts-for-difference (CFDs) and single stock futures (SSFs), the long positions of which are held by Huge and Huge Telecom. *** 7 164 325 Huge shares being held on behalf of Luigi's Trust, the sole beneficiary of which is Anton Daniel Potgieter. ^ A non-beneficial holding related to JC Herbst. # Held on behalf of Michael Ronald Beamish.
Huge Group Limited
112
Supplementary information – Shareholder analysis (continued)
4. Shareholder analysis - 2011
Number of Number of %
shareholders shares shareholding
Public 358 35 627 343 31.88
Non-public 26 76 132 657 68.12
384 111 760 000 100.00
5. Non-public shareholder analysis - 2011
Number of Number of
shareholders shares
Directors of Huge Group Limited 10 33 981 095
Non-beneficial indirect holdings relating to directors of
Huge Group Limited 1 10 187 674
Non-beneficial indirect holdings relating to associates
of directors of Huge Group Limited 2 1 148 269
Directors of Huge Telecom Proprietary Limited 5 1 568 445
Holdings subject to exercised call options 4 934 400
Holdings underlying derivative instruments 1 12 373 743
Treasury shares 2 15 859 031
Holdings of Designated Advisor 1 80 000
26 76 132 657
6. Major shareholders - 2011
Number of %
shares shareholding
Mojaho Trading Proprietary Limited* 12 630 343 11.30
Nedgroup Securities Proprietary Limited** 12 393 489 11.10
Huge Telecom Proprietary Limited 9 646 926 8.60
Huge Group Limited Trust Account*** 7 248 725 6.50
Pacific Breeze Trading Proprietary Limited^ 6 432 200 5.80
Michael Ronald Beamish 6 284 300 5.60
Huge Group^^ 6 212 105 5.60* VM Mokholo is a 20% shareholder in Mojaho Trading Proprietary Limited. ** Held as a hedge for short positions in contracts-for-difference (CFDs) and single stock futures (SSFs), the long positions of which are held by Huge and Huge Telecom. *** 7 164 325 Huge shares being held on behalf of Luigi's Trust, the sole beneficiary of which is Anton Daniel Potgieter. ^ A non-beneficial holding related to JC Herbst. ^^ Held by Huge as treasury shares.
*** Holder of underlying shares to single stock futures (SSF) contracts held by Huge.
Huge Group Limited
113
Supplementary information – Shareholder analysis (continued)
7. Shareholder analysis and information - 2012
Type of shareholder Number of Number of
shareholders shares
Individuals 262 26 424 048
Nominees and trusts 19 15 693 854
Closes Corporations 8 512 255
Companies, financial institutions and other institutions 35 62 917 738
26 105 547 895
8. Size of shareholding - 2012
Number of Number of
shareholders shares
0 – 1 000 shares 41 19 340
1 001 – 5 000 shares 65 206 962
5 001 – 100 000 shares 165 5 081 473
100 001 – 1 000 000 shares 36 14 345 980
1 000 001 shares and over 17 85 894 140
324 105 547 895
Huge Group Limited
114
HUGE GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2006/023587/06)
(“Huge” or “the Company”)
Share code: HUG ISIN: ZAE000102042
Notice of annual general meeting of the shareholders of the Company
Notice is hereby given that the Annual General Meeting of the Company shall be held in the Woody Woods Boardroom, 146a Kelvin Drive, Woodmead, 2128, at 10:00 on Friday, 28 September 2012, to consider and if deemed fit, to pass, with or without modification, the following ordinary and special resolutions:
Electronic participation in the annual general meeting
Please note that the Company intends to make provisions for shareholders of the Company, or their proxies, to participate in the Annual General Meeting of the Company by way of electronic communication. Should you wish to participate in the Annual General Meeting by way of electronic communication, you will need to contact the Company at 0860 03 04 03 (Contact – Eleanor Wardrop) by Wednesday 26 September 2012, so that the Company can provide for a teleconference dial-in facility. Please ensure that if you are participating in the meeting via a teleconference facility that the voting proxies must be sent through to the transfer secretaries, Computershare Investor Services Proprietary Limited, Ground Floor, 70 Marshall Street, Johannesburg, 2001 (PO Box 61051, Marshalltown, 2107) so as to be received by them by no later than 10:00 on Wednesday, 26 September 2012.
The Board of directors of the Company has determined that the record date for the purpose of determining which shareholders of the Company are entitled to receive this notice of Annual General Meeting is 3 September 2012 and that the record date for purposes of determining which shareholders of the Company are entitled to participate in and vote at the Annual General Meeting is 21 September 2012. Accordingly, only shareholders who are registered in the register of members of the Company on 21 September 2012 will be entitled to participate in and vote at the Annual General Meeting.
Ordinary resolution number 1 – Adoption of annual financial statements
“RESOLVED THAT the annual financial statements of the Company and its subsidiary companies for the period ended 29 February 2012, together with the directors’ report and the auditors’ report thereon, be received, considered and adopted.”
Explanatory note for ordinary resolution number 1
The purpose of ordinary resolution number 1 is to obtain shareholder approval for the annual financial statements presented for the year ended 29 February 2012.
Ordinary resolution number 2 – Director retirement and re-election (Mr SP Tredoux)
“RESOLVED THAT SP Tredoux, who retires in accordance with the Company’s articles of association but offers himself for re-election, be and is hereby re-elected as the lead independent non-executive director of Huge Group Limited.”
Ordinary resolution number 3 – Director retirement and re-election (Mr AD Potgieter)
“RESOLVED THAT AD Potgieter, who retires in accordance with the Company’s articles of association but offers himself for re-election, be and is hereby re-elected as a non-executive director of Huge Group Limited.”
Explanatory note for ordinary resolution number 2 and 3
In terms of the Company’s articles of association, one-third of the directors are required to retire by rotation each year.
Huge Group Limited
115
Ordinary resolution number 4 – Appointment of non-executive director (MR DR Gammie)
“RESOLVED THAT the appointment of DR Gammie as a non-executive director of the Company be and is hereby approved.”
Explanatory note for ordinary resolution number 4
The purpose of ordinary resolution number 4 is to approve the appointment of Mr DR Gammie as a non-executive director of the Company.
Ordinary resolution number 5 – Appointment and remuneration of auditor
“RESOLVED THAT the appointment of BDO South Africa Incorporated as auditor, with JG Marais as the designated audit partner, of the Company be and is hereby approved.”
Explanatory note for ordinary resolution number 5
The purpose of ordinary resolution number 5 is to approve the appointment of BDO South Africa Incorporated as auditor of the Company for the next financial year, being the year ending 28 February 2013.
Ordinary resolution number 6 – Appointment of Combined Audit and Risk Committee member (DR Gammie)
“RESOLVED THAT DR Gammie be and is hereby approved as a member of the Combined Audit and Risk Committee.”
Ordinary resolution number 7 – Appointment of Combined Audit and Risk Committee member (MR Beamish)
“RESOLVED THAT MR Beamish be and is hereby approved as a member of the Combined Audit and Risk Committee.”
Ordinary resolution number 8 – Appointment of Combined Audit and Risk Committee member (SP Tredoux)
“RESOLVED THAT SP Tredoux be and is hereby approved as a member of the Combined Audit and Risk Committee.”
Explanatory note for ordinary resolution number 6 – 8:
In terms of the Companies Act, 71 of 2008, shareholders are required to approve the appointment of the Members of the Audit Committee of the Company.
The curriculum vitae of each of the persons nominated as members of the Combined Audit and Risk Committee are set out on page 6 of this Annual Report. In terms of section 61(8)(c)(iii) of the Companies Act, 71 of 2008, shareholders are required to approve the appointment of the members of the Audit and Risk Committee by means of a simple majority of votes cast in favour of the appointment.
Ordinary resolution number 9 – Approval of remuneration policy
“RESOLVED THAT shareholders endorse, by way of a non-binding advisory vote, the Company’s remuneration policy (excluding the remuneration of the non-executive directors and the members of Board committees for their services as directors and members of committees) as set out on page 16 of this annual report.”
Remuneration policy summary
Explanatory note for ordinary resolution number 9
Chapter 2 of King III dealing with boards and directors requires companies to every year table their remuneration policy to shareholders for a non-binding advisory vote at the Annual General Meeting. This vote enables shareholders to express their views on the remuneration policies adopted and on their implementation.
This ordinary resolution is of an advisory nature and failure to pass this resolution will therefore not have any legal consequences relating to existing arrangements. However the Board will take the outcome of the vote into consideration when considering the Company’s remuneration policy. Nevertheless, for record purposes, the minimum percentage of voting rights that is required for this resolution to be adopted as a non-binding advisory vote is 50% of the voting rights plus one vote to be cast on the resolution.
Huge Group Limited
116
Ordinary resolution number 10 – General authority to allot and issue shares for cash
“RESOLVED THAT, subject to the approval of 75% of shareholders present in person and by proxy, and entitled to vote at the meeting, excluding the controlling shareholders of the Company and the Company’s Designated Advisor, the directors of the Company be and are hereby authorised, by way of a general authority, to allot and issue all or any of the authorised but unissued shares of the Company as they in their discretion deem fit, subject to the following limitations:
the shares which are the subject of the issue for cash must be of a class already in issue, or where this is not the case, must be limited to such equity shares that are convertible into a class already in issue;
this authority shall not endure beyond the next annual general meeting of the Company nor shall it endure beyond fifteen months from the date of this meeting;
there will be no restrictions in regard to the persons to whom the shares may be issued, provided that such shares are to be issued to public shareholders (as defined by the JSE Limited in its Listings Requirements) and not to related parties;
upon any issue of shares which, together with prior issues during any financial year, will constitute 5% or more of the number of shares of the class in issue, the Company shall by way of an announcement on the Securities Exchange News Service (“SENS”) give full details thereof, including the effect on the net asset value and earnings per share of the Company;
the aggregate issue of a class of shares already in issue in any financial year shall not exceed 50% of the number of that class of shares (including securities which are compulsorily convertible into shares of that class); and
average traded price of the Company’s shares over the 30-day period prior to the date that the price is agreed or determined by the directors of the Company.
Explanatory note for ordinary resolution number 10
The purpose of ordinary resolution number 10 is to permit the directors of the Company to issue unissued shares in the Company as and when the need may arise.
Ordinary resolution number 11 – Unissued shares under the control of the directors
“RESOLVED THAT the authorised but unissued ordinary shares in the capital of the Company be placed under the control of the directors of the Company until the next Annual General Meeting of the Company and that the directors be and are hereby authorised and empowered to allot, issue and otherwise dispose of such shares, on such terms and conditions, and at such times as the directors in their discretion deem fit, subject to sections 38 and 40 of the Companies Act, 71 of 2008, and the JSE Limited’s Listings Requirements.”
Explanatory note for ordinary resolution number 11:
Shareholders are requested to approve the placing of unissued shares under the control of the directors in order to facilitate potential acquisitions or issues of shares for cash or similar transactions.
Special resolution number 1 – General authority to acquire (repurchase) shares
“RESOLVED THAT, subject to the approval of 75% of the shareholders present in person and by proxy, and entitled to vote at the meeting, the Company and/or a subsidiary of the Company is hereby authorised, by way of a general authority from time to time, to acquire ordinary shares in the share capital of the Company from any person in accordance with the requirements of the Company’s Articles of Association, the Companies Act and the JSE Limited Listings Requirements, provided that:
any such acquisition of ordinary shares shall be effected through the order book of the JSE trading system and done without any prior arrangement or understanding with the counterparty;
this general authority shall be valid until the earlier of the Company’s next annual general meeting or the variation or revocation of such general authority by special resolution at any subsequent general meeting of the Company, provided that it shall not extend beyond 15 months from the date of passing of this special resolution number 1;
an announcement will be published as soon as the Company or any of its subsidiary companies have acquired ordinary and/or preference shares constituting, on a cumulative basis, 20% of the number of ordinary and/or preference shares in issue and for each 5% in aggregate of the initial number acquired thereafter, in compliance with paragraph 11.27 of the JSE Limited’s Listings Requirements;
acquisitions of shares in aggregate in any one financial year may not exceed 20% of the Company’s ordinary and/or 20% of its preference issued share capital, as the case may be, as at the date of passing of this special resolution number 1;
Huge Group Limited
117
ordinary and/or preference shares may not be acquired at a price greater than 10% above the weighted average of the market value at which such ordinary and/or preference shares are traded on the JSE as determined over the five business days immediately preceding the date of acquisition of such ordinary and/or preference shares;
the Company has been given authority by its Memorandum of Incorporation;
the Board of directors authorises the acquisition, the Company passes the solvency and liquidity test and that from the time that the test is done, there are no material changes to the financial position of the Company;
at any point in time, the Company and/or its subsidiary companies may only appoint one agent to effect any such acquisition;
the Company and/or its subsidiary companies undertaking that they will not enter the market to so acquire the Company’s shares until the Company’s Designated Advisor has provided written confirmation to the JSE regarding the adequacy of the Company’s working capital in accordance with Schedule 25 of the JSE Listings Requirements;
the Company and/or its subsidiary companies not acquiring any shares during a prohibited period, as defined in the JSE Limited’s Listings Requirements, unless a repurchase programme is in place, where dates and quantities of shares to be traded during the prohibited period are fixed and full details of the programme have been disclosed in an announcement over SENS prior to the commencement of the prohibited period.”
Explanatory note for special resolution number 1:
The reason for and effect of this special resolution is to grant the Company and its subsidiary companies a general authority to facilitate the acquisition by the Company and/or its subsidiary companies of the Company’s own shares, which general authority shall be valid until the earlier of the next annual general meeting of the Company or the variation or revocation of such general authority by special resolution at any subsequent general meeting of the Company, provided that this general authority shall not extend beyond 15 months from the date of the passing of this special resolution number 1. Any decision by the directors, after considering the effect of an acquisition of up to 20% of the Company’s issued ordinary and/or 20% of its participating preference shares, as the case may be, to use the general authority to acquire shares of the Company will be taken with regard to the prevailing market conditions and other factors and provided that, after such acquisition, the directors are of the opinion that:
the Company and its subsidiary companies will be able to pay their debts in the ordinary course of business;
recognised and measured in accordance with the accounting policies used in the latest audited annual Group financial statements, the assets of the Company and its subsidiary companies will exceed the liabilities of the Company and its subsidiary companies;
the share capital and reserves of the Company and its subsidiary companies will be adequate for the purposes of the business of the Company and its subsidiary companies;
the working capital of the Company and its subsidiary companies will be adequate for the purposes of the business of the Company and its subsidiary companies,
for the period of 12 months after the date of the notice of the annual general meeting. The Company will ensure that its Designated Advisor will provide the necessary letter on the adequacy of the working capital in terms of the JSE Limited’s Listings Requirements, prior to the commencement of any purchase of the Company’s shares on the open market.
The JSE Limited’s Listings Requirements require, in terms of Section 11.26, the following disclosures, which appear in this annual report:
Directors and management – refer to pages 6 and 7 of this Annual Report;
Major shareholders – refer to page 111 of this Annual Report;
Directors’ interests in securities – refer to page 38 of this Annual Report; and
Share capital of the Company – refer to pages 31 to 35 and 81 to 83 of this Annual Report.
Litigation statement
In terms of paragraph 11.26 of the JSE Limited’s Listings Requirements, the directors, whose names appear on pages 6 and 7 of this Annual Report of which the notice of annual general meeting forms part, are not aware of any legal or arbitration proceedings that are pending or threatened, that may have or had in the recent past, being at least the previous 12 months, a material effect on the Company’s financial position that has not already been disclosed in the Group annual financial statements and annual financial statements that form part of this Annual Report.
Huge Group Limited
118
Directors’ responsibility statement
The directors, whose names appear on pages 6 and 7 of this Annual Report, collectively and individually, accept full responsibility for the accuracy of the information pertaining to this special resolution and certify that, to the best of their knowledge and belief, there are no facts that have been omitted which would make any statements false or misleading, and that all reasonable enquiries to ascertain such facts have been made and that this special resolution contains all information required by law and the JSE Limited’s Listings Requirements.
Material changes
Other than the facts and developments reported on in this Annual Report, there have been no material changes in the financial or trading position of the Company and its subsidiary companies since the date of signature of the Audit Report and up to the date of the notice of annual general meeting.
Special resolution number 2 – Non-executive directors’ remuneration
“RESOLVED THAT, subject to the approval of 75% of the members present in person and by proxy, and entitled to vote at the meeting, the approval of the remuneration payable to the non-executive directors for the financial year commencing 1 March 2012, as follows:
Chairman Other directors/Members of committees
Monthly retainer R25 000 R15 000
Meeting fees (per day): Attendance fee
R10 000 R10 000
Special Board meetings: Attendance fee
R3 000 R3 000
Explanatory note for special resolution number 2
In terms of section 69(9) of the Companies Act, No. 71 of 2008, shareholders are required to approve the remuneration of non-executive directors.
Special resolution number 3 – General authority to enter into funding agreements, provide loans or other financial assistance
“RESOLVED THAT, subject to the approval of 75% of the members present in person and by proxy, and entitled to vote at the meeting, in terms of section 45 of the Companies Act, No. 71 of 2008, the Company be and is hereby granted a general approval authorising that the Company and or any one or more of its wholly-owned subsidiary companies incorporated in South Africa to enter into direct or indirect funding agreements, guarantee a loan or other obligations, secure any debt or obligation, or to provide loans or financial assistance between any one or more of the subsidiary companies from time to time, subject to the provisions of the JSE Limited’s Listings Requirements, for funding agreements and as the directors in their discretion deem fit.”
Explanatory note for special resolution number 3
The purpose of this resolution is to enable the Company to enter into funding arrangements with its subsidiary companies and to allow inter-Group loans between subsidiary companies.
Huge Group Limited
119
Voting and proxies
Certificated shareholders and dematerialised shareholders with “own name” registration
If you are unable to attend the annual general meeting of Huge shareholders to be held in the Woody Woods Boardroom, 146a Kelvin Drive, Woodmead, 2128, at 10:00 on Friday, 28 September 2012 and wish to be represented thereat, you should complete and return the attached form of proxy in accordance with the instructions contained therein and lodge it with, or post it to, the transfer secretaries, namely Computershare Investor Services Proprietary Limited, Ground Floor, 70 Marshall Street, Johannesburg, 2001 (PO Box 61057, Marshalltown, 2107) so as to be received by them by no later than 10:00 on Wednesday, 26 September 2012.
Dematerialised shareholders, other than those with “own name” registration
If you hold dematerialised shares in Huge through a CSDP or broker and do not have an “own name” registration, you must timeously advise your CSDP or broker of your intention to attend and vote at the annual general meeting or be represented by proxy thereat in order for your CSDP or broker to provide you with the necessary authorisation to do so, or should you not wish to attend the annual general meeting in person, you must timeously provide your CSDP or broker with your voting instruction in order for the CSDP or broker to vote in accordance with your instruction at the annual general meeting.
Each shareholder, whether present in person or represented by proxy, is entitled to attend and vote at the annual general meeting. On a show of hands every shareholder who is present in person or by proxy shall have one vote and, on a poll, every shareholder present in person or by proxy shall have one vote for each share held by him/her.
A form of proxy which sets out the relevant instructions for use is attached for those members who wish to be represented at the annual general meeting of members. Duly completed forms of proxy must be lodged with the transfer secretaries of the Company to be received by not later than 10:00 on Wednesday, 26 September 2012.
By order of the Board
Jean Michelle Tyndale-Biscoe
Company Secretary
31 August 2012
Huge Group Limited
120
HUGE GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2006/023587/06)
(“Huge” or “the Company”)
Share code: HUG ISIN: ZAE000102042
FORM OF PROXY (for use by certificated and own name dematerialised shareholders only)
For use by certificated and “own name” registered dematerialised shareholders of the Company (“shareholders”) at the annual general meeting of Huge to be held at 10:00 on Friday, 28 September 2012 in the Woody Woods Boardroom, 146a Kelvin Drive, Woodmead, 2128 (“the annual general meeting”).
I/We (please print) ______________________________________________________________________________________
of (address) ___________________________________________________________________________________________
being the holder/s of ______________________________ ordinary shares of R0,0001 cent each in Huge, appoint (see note 1):
1. ______________________________________________________________________________________ or failing him/her,
2. ______________________________________________________________________________________ or failing him/her,
3. the chairman of the annual general meeting,
as my/our proxy to act for me/us and on my/our behalf at the annual general meeting which will be held for the purpose of considering, and if deemed fit, passing, with or without modification, the ordinary and special resolutions to be proposed thereat and at any adjournment thereof; and to vote for and/or against such resolutions and/or abstain from voting in respect of the ordinary shares registered in my/our name/s, in accordance with the following instructions (see note 2):
Number of votes
For Against Abstain
Ordinary resolution number 1 – Adoption of annual financial statements
Ordinary resolution number 2 – Director retirement and re-election (Mr SP Tredoux)
Ordinary resolution number 3 – Director retirement and re-election (Mr AD Potgieter)
Ordinary resolution number 4 – Appointment of non-executive director (Mr DR Gammie)
Ordinary resolution number 5 – Appointment and remuneration of Auditor
Ordinary resolution number 6 – Appointment of Combined Audit and Risk Committee member (Mr DR Gammie)
Ordinary resolution number 7 – Appointment of Combined Audit and Risk Committee member (Mr MR Beamish)
Ordinary resolution number 8 – Appointment of Combine Audit and Risk Committee member (Mr SP Tredoux)
Ordinary resolution number 9 – Approval of remuneration policy
Ordinary resolution number 10 – General authority to allot and issue shares for cash
Ordinary resolution number 11 – Unissued shares under control of the directors
Special resolution number 1 – General authority to acquire (repurchase) shares
Special resolution number 2 – Non-executive directors’ remuneration
Special resolution number 3 – General authority to enter into funding agreements, provide loans or other financial assistance
Signed at ________________________________________________ on ______________________________________ 2012
Signature _____________________________________________________________________________________________
Assisted by me (where applicable)
Name __________________________ Capacity ___________________________ Signature __________________________
Huge Group Limited
121
Notes to the form of proxy
1. This form of proxy is for use by certificated shareholders and dematerialised shareholders with “own name” registration whose shares are registered in their own names on the record date and who wish to appoint another person to represent them at the annual general meeting. If duly authorised, companies and other corporate bodies who are shareholders having shares registered in their own names may appoint a proxy using this form of proxy, or may appoint a representative in accordance with the last paragraph below.
Other shareholders should not use this form. All beneficial holders who have dematerialised their shares through a Central Securities Depository Participant (“CSDP”) or broker, and do not have their shares registered in their own name, must provide the CSDP or broker with their voting instructions. Alternatively, if they wish to attend the annual general meeting in person, they should request the CSDP or broker to provide them with a letter of representation in terms of the custody agreement entered into between the beneficial owner and the CSDP or broker.
2. This form of proxy will not be effective at the annual general meeting unless received at the registered office of the Company at 146a Kelvin Drive, Woodmead, 2128, South Africa, not later than 10:00 on Wednesday, 26 September 2012.
3. This proxy shall apply to all the ordinary shares registered in the name of shareholders at the record date unless a lesser number of shares are inserted.
4. A shareholder may appoint one person as the proxy by inserting the name of such proxy in the space provided. Any such proxy need not be a shareholder of the Company. If the name of the proxy is not inserted, the chairman of the annual general meeting will be appointed as proxy. If more than one name is inserted, then the person whose name appears first on this form of proxy and who is present at the annual general meeting will be entitled to act as proxy to the exclusion of any persons whose names follow. The proxy appointed in this form of proxy may delegate the authority given to him/her in this form of proxy by delivering to the Company, in the manner required by these instructions, a further form of proxy which has been completed in a manner consistent with the authority given to the proxy of this form of proxy.
5. Unless revoked, the appointment of proxy in terms of this form of proxy remains valid until the end of the annual general meeting even if such meeting or a part thereof is postponed or adjourned.
6. If: 6.1 a shareholder does not indicate on this instrument that the proxy is to vote in favour of or against or to abstain from voting
on any resolution; or 6.2 the shareholder gives contrary instructions in relation to any matter; or 6.3 any additional resolution/s which are properly put before the annual general meeting; or 6.4 any resolution listed in the form of proxy is modified or amended,
the proxy shall be entitled to vote or abstain from voting, as he/she thinks fit, in relation to that resolution or matter. If, however, the shareholder has provided further written instructions which accompany this form of proxy and which indicate how the form of proxy should vote or abstain from voting in any of the circumstances referred to in 6.1 to 6.4, then the form of proxy shall comply with those instructions.
7. If this proxy is signed by a person (signatory) on behalf of the shareholder, whether in terms of a power of attorney or otherwise, then this form of proxy will not be effective unless: 7.1 it is accompanied by a certified copy of the authority given by the shareholder to the signatory; or 7.2 the Company has already received a certified copy of that authority.
8. The chairman of the annual general meeting may, at the chairman’s discretion, accept or reject any form of proxy or other written appointment of a proxy which is received by the chairman prior to the time when the annual general meeting deals with a resolution or matter to which the appointment of the proxy relates, even if that appointment of a proxy has not been completed and/or received in accordance with these instructions. However, the chairman shall not accept any such appointment of a proxy unless the chairman is satisfied that it reflects the intention of the shareholder appointing the proxy.
9. Any alterations made in this form of proxy must be initialled by the authorised signatory/ies.
10. This form of proxy is revoked if the shareholder who granted the proxy: 10.1 delivers a copy of the revocation instrument to the Company and to the proxy or proxies concerned, so that it is received
by the Company by not later than 10:00 on Wednesday 26 September 2012; or 10.2 appoints a later, inconsistent appointment of proxy for the annual general meeting; or 10.3 attends the annual general meeting in person.
11. If duly authorised, companies and other corporate bodies who are shareholders of the Company having shares registered in their own name may, instead of completing this form of proxy, appoint a representative to represent them and exercise all of their rights at the annual general meeting by giving written notice of the appointment of that representative. This notice will not be effective at the annual general meeting unless it is accompanied by a duly certified copy of the resolution/s or other authorities in terms of which that representative is appointed and is received at the Company’s registered office at 146a Kelvin Drive, Woodmead, 2128, South Africa, not later than 10:00 on Wednesday, 26 September 2012.
Huge Group Limited
122
Summary of rights established by section 58 of the Companies Act, 71 of 2008 (“Companies Act”), as required in terms of sub-section 58(8)(b)(i): 1. A shareholder may at any time appoint any individual, including a non-shareholder of the Company, as a proxy to participate in,
speak and vote at a shareholders’ meeting on his/her behalf (section 58(1)(a)), or to give or withhold consent on behalf of the shareholder to a decision in terms of section 60 (shareholders acting other than at a meeting) (section 58(1)(b)).
2. A proxy appointment must be in writing, dated and signed by the shareholder, and remains valid for one year after the date on which it was signed or any longer or shorter period expressly set out in the appointment, unless it is revoked in terms of paragraph 6.3 below or expires earlier in terms of paragraph 10.4 below (section 58(2)).
3. A shareholder may appoint two or more persons concurrently as proxies and may appoint more than one proxy to exercise voting rights attached to different securities held by the shareholder (section 58(3)(a)).
4. A proxy may delegate his/her authority to act on behalf of the shareholder to another person, subject to any restriction set out in the instrument appointing the proxy (“proxy instrument”) (section 58(3)(b)).
5. A copy of the proxy instrument must be delivered to the Company, or to any other person acting on behalf of the Company, before the proxy exercises any rights of the shareholder at a shareholders’ meeting (section 58(3)(c)) and in terms of the Memorandum of Incorporation (“MOI”) of the Company at least 48 hours before the meeting commences.
6. Irrespective of the form of instrument used to appoint a proxy: 6.1. the appointment is suspended at any time and to the extent that the shareholder chooses to act directly and in person in
the exercise of any rights as a shareholder (section 58)4)(a)); 6.2. the appointment is revocable unless the proxy appointment expressly states otherwise (section 58(4)(b)); and 6.3. if the appointment is revocable, a shareholder may revoke the proxy appointment by cancelling it in writing or by making a
later, inconsistent appointment of a proxy, and delivering a copy of the revocation instrument to the proxy and to the Company (section 58(4)(c)).
7. The revocation of a proxy appointment constitutes a complete and final cancellation of the proxy’s authority to act on behalf of the shareholder as of the later of the date stated in the revocation instrument, if any, or the date on which the revocation instrument was delivered as contemplated in paragraph 6.3 above (section 58(5)).
8. If the proxy instrument has been delivered to a Company, as long as that appointment remains in effect, any notice required by the Companies Act or the Company’s MOI to be delivered by the Company to the shareholder must be delivered by the Company to the shareholder (section 58(6)(a)), or the proxy or proxies, if the shareholder has directed the Company to do so in writing and paid any reasonable fee charged by the Company for doing so (section 58(6)(b)).
9. A proxy is entitled to exercise, or abstain from exercising, any voting right of the shareholder without direction, except to the extent that the MOI or proxy instrument provides otherwise (section 58(7)).
10. If a Company issues an invitation to shareholders to appoint one or more persons named by the Company as a proxy, or supplies a form of proxy instrument: 10.1. the invitation must be sent to every shareholder entitled to notice of the meeting at which the proxy is intended to be
exercised (section 58(8)(a)); 10.2. the invitation or form of proxy instrument supplied by the Company must:
10.2.1. bear a reasonably prominent summary of the rights established in section 58 of the Companies Act (section 58(8)(b)(i));
10.2.2. contain adequate blank space, immediately preceding the name(s) of any person(s) named in it, to enable a shareholder to write the name, and if desired, an alternative name of a proxy chosen by the shareholder (section 58(8)(b)(ii)); and
10.2.3. provide adequate space for the shareholder to indicate whether the appointed proxy is to vote in favour of or against any resolution(s) to be put at the meeting, or is to abstain from voting (section 58(8)(b)(iii));
10.3. the Company must not require that the proxy appointment be made irrevocable (section 58(8)(c)); and 10.4. the proxy appointment remains valid only until the end of the meeting at which it was intended to be used, subject to
paragraph 7 above (section 58(8)(d)).
www.hugegroup.com