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unlocking business opportunity

Integrated Report 2014

Our VisionWe shall build a group

that excels in the creation of client, employee and

stakeholder value, led by a huge brand and service ethic

Huge Group Limited Integrated Report 2014 1

CONTENTSTHE GROUPCorporate Overview 2Segmental Structure 3

CORPORATE GOVERNANCE

Board of Directors 4Chairman’s Letter 6CEO’s Report 12Management Team 20Sustainability Report 22Report of the Combined Audit and Risk Commitee 34

ANNUAL FINANCIAL STATEMENTSDirectors’ Responsibilities and Approval 40Group Company Secretary’s Certification 41Directors’ Report 42Independent Auditors’ Report 51Statement of Financial Position 52Statement of Comprehensive Income 53Statement of Changes in Equity 54Statement of Cash Flows 56Accounting Policies 57Notes to the Consolidated and SeparateAnnual Financial Statements 73

SHAREHOLDER INFORMATIONNotice of Annual General Meeting of the Shareholders of the Company 117Form of Proxy attached

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CORPORATE OVERVIEW

Huge Group Limited is an investment holding company listed on the AltX of the JSE. The group of companies comprising Huge 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 and Huge Mobile, wholly-owned subsidiary companies of Huge and the principal trading operations of the Group, are two of South Africa’s leading providers of voice, messaging, data and video connectivity services utilising a wireless GSM-based, fixed-cellular, last-mile solution.

Eyeballs is a technology provider whose technology consists of a software application that recipient users 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-endof its technology on the servers of various customers, particularly mobile network operators operating throughout the world.


SEGMENTAL STRUCTURE

Owns 77%

Owns 100%

Owns 100%

Owns 100%

Owns 50%

unlocking business potential

your flexible connection

enabling business processes

Owns 100

%

handsets|broadband|telephony

Owns 49.9%

mobile small messages,

big impact

Owns 49.67%

your connectivity provider

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BOARD OF DIRECTORS

1. Vincent Mokhele Mokholo (40)Non - Executive Chairman, 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 a 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.

2. James Charles Herbst (43)Chief Executive Officer, BComm, BAcc, CA (SA), Chartered Financial AnalystAppointed: 1 September 2006James is a CA (SA) 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).

3. David (“Dave”) Deetlefs (58)Group Financial Director / Chief Operating Officer, BComm, HDip Acc, CA (SA)Appointed: 1 October 2012Dave is a qualified Chartered Accountant, and holds BComm and BAcc degrees from the University of the Witwatersrand. Prior to joining the Huge Group, Dave held a number of senior executive positions within the ICT sector, including Chief Executive Officer and prior to that, Chief Financial Officer of the Glocell Group, Chief Financial Officer of the listed Unihold Group, and Chairman of the companies within the Unihold Technologies division.

4. Stephen (“Steve”) Peter Tredoux (54)Lead Independent Non-Executive DirectorAppointed: 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.

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7. Jean Michelle Tyndale-Biscoe (43) – Group CompanySecretary, BA (Law), HDip Company LawAppointed: 7 May 2012Jean began her career in retail banking but shortly thereafter moved into the field of management consulting, where she spent time with a niche consulting firm before moving to Andersen Consulting in 1995. In 2000, she joined Manhattan Equity Corporate Finance, which firm specialised in providing corporate finance and JSE sponsor-related activities to small and medium sized JSE listed companies. Up until joining Huge Group in May 2012, Jean, in her role as a JSE Approved Executive and Designated Advisor, was involved in a number of listings, mergers, acquisitions, delistings and other JSE-related transactions, including the listing of Huge Group on the AltX in August 2007. In addition to her Group Company Secretarial duties, Jean serves as the General Manager – Corporate Resources for Huge Telecom, and sits on the Social and Ethics Committee of the Group.

5. Anton Daniel Potgieter (45)Non-Executive Director, BBusSc (Hons – Information Systems)Appointed: 2 July 2007Anton has twenty-one 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 telephone 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. Anton is a member of the Audit Committee, a member of the Risk Committee and Chairman of the Remuneration Committee.

6. Dennis Robert Gammie (60) Independent Non-Executive Director, CA (SA)Appointed: 28 June 2012Dennis is a CA (SA) and has previously served as the Financial Director of subsidiary companies of the Imperial Group, Murray & Roberts Materials and the Aveng Group. Prior to taking early retirement, Dennis served as an executive director on the board of the Aveng Group, where he was Chairman of the Growth Committee, the Tender and Risk Committee, and acting Managing Director of an Aveng Group subsidiary company. Dennis is Chairman of the Combined Audit and Risk Committee of Huge.

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INTRODUCTION

Huge Telecom (Huge Group’s principal operating subsidiary) turns 21 this year. It commenced operations on 13 July 1993 and supplies communications services to SMMEs (small, micro and medium sized enterprises) in South Africa. Since then it has faced many challenges, but in the last five years, it has successfully redefined itself. It has rebuilt its foundations, changed its business model and pioneered a special niche in the market.

Huge Telecom sells full suite telephony to corporate enterprises (mainly to SMMEs) but is also able to provide the same service to organisations of any size.

I am reminded of an article which I read last year written by Bruce Rogers about Rob Hale and his company, Granite (a US-based company), and how Rob Hale turned a PUB into a growth business. You may be pondering the relevance of a PUB in a letter about a telecommunications company and you would be right – I am not referring to a drinking joint but rather to the acronym for a ‘plain unwanted business’.

In Granite’s case the PUB sells copper-based, landline phones – a business which conventional wisdom holds is a dying market. However, in the

11 years in which it has been operating, Granite has grown into an $850 million revenue company focusing on a space neglected

by the big telcos. It operates 1.3 million analogue telephones (roughly about 35% of the size of Telkom) or

5.5% of all lines in the United States.

Many market commentators feel that Huge Telecom has chosen to operate a PUB with

little growth prospects – but this couldn’t be further from the truth. While LCR (least cost

routing) – Huge Telecom’s original sphere of business - was proclaimed extinct a

few years ago and relegated to PUB status, what many commentators do not know is that it has been possible to transform the business into a high growth, high margin opportunity – much like what has been done by Rob Hale with Granite.

The start of Huge Telecom’s transformation in the middle of 2010 from PUB status into a high growth, high margin prospect was occasioned probably by chance rather than by design.

CHAIRMAN’S LETTER


With the mass exodus from LCR to Voice over Internet Protocol (VoIP), a once overcrowded industry has been reduced to no participants other than us! Commercial arrangements that were at one time reserved for major distributors like Altech Autopage and Nashua Mobile were on offer suddenly to Huge Telecom – and with no one else around, Huge Telecom seized the opportunity. Agreements were signed that provided Huge Telecom with an efficient and sustainable supply of last-mile access – the connection between the network and the customer – at a competitive cost. One only has to reflect on the years of fighting and lobbying to get Telkom to unbundle its last mile to understand the magnitude of securing wholesale-based, last-mile access.

Huge Telecom has spent the last three years converting its last-mile access into new supply arrangements based on a wholesale model that is underpinned by the ‘cost price plus mark-up’ principle as opposed to the ‘retail-minus-discount’ principle.

In the past Huge Telecom, restricted by input pricing, provided a very limited voice service confined to facilitating outbound telephone calls destined for mobile destinations by re-selling the retail based subscription packages sold by the mobile network operators (MNOs), being Cell C, MTN and Vodacom. This was an opportunistic and largely unsustainable offering developed to arbitrage the price of a Telkom to mobile telephone call against a mobile to mobile telephone call. It involved connecting a voice modem or router (often called a “Premicell” in the early days) to a company’s private automated branch exchange or PABX (a switchboard) and programming the said PABX to divert outbound calls away from Telkom and through the SIM card in the router – thereby using technology to create an alternative, wireless and lower cost route. And so Huge Telecom’s business became known as “least-cost-routing” and “LCR” was born. The foundation of the LCR business model was flawed from the onset. The big problem was that the LCR business model was retail based (as opposed to Huge) and margins were dependent on the commissions (or discounts as they were called) that the MNOs were prepared to pay to bulk buyers (like Huge Telecom) of their airtime. Also, the unique selling proposition or USP was only the saving that could be passed on to customers because of the arbitrage. The inability of the business model to adapt to a changing regulatory landscape further increased its fragility.

Today, Huge Telecom is able to supply “full-suite telephony”, in other words, we can carry all of a customer’s voice traffic, both inbound and outbound and to any destinations, at competitive rates. This is incredibly significant. The service we provide today is directly equivalent to the service provided by the fixed-line incumbents. This factor alone increases Huge Telecom’s market fourfold because outbound mobile phone calls (which were the only calls provided by Huge Telecom as an LCR operator) represent one quarter of the total traffic generated by a customer of Huge Telecom. Outbound fixed line calls, inbound mobile calls and inbound fixed line calls account for another three quarters of the voice traffic.

Our solution will also soon integrate comprehensively with any PABX by providing line hunting (distributing multiple simultaneous phone calls directed to a single telephone number to a group of several phone lines), direct-inward-dial or DID (which is dialling direct to the extension), direct-outward-dial or DOD (which is dialling direct from the extension), Mobex (mobile extensions that are integrated with the PABX) and caller line identity or CLI.

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And today, Huge Telecom does not differentiate itself by the savings it is able to provide to customers but rather by the range, quality and the speed of service that it is able to provide. For example, the lead time to implement Huge Telecom’s connectivity is far shorter than the lead times of the fixed line incumbents. Mean times to repair are also far shorter.

The competitive landscape has also changed. LCR was overcrowded. Today, Huge Telecom is the ONLY provider of a full-suite telephony solution in South Africa using a GSM-based last mile via fixed-cellular routing equipment. Everyone else has run off creating VoIP solutions in competition to Telkom.

Another feature of Huge Telecom’s new business model is its use of third parties to distribute its product. In the last three years Huge Telecom has secured an extensive network of Business Partners who sell its services. With over three hundred Business Partners across South Africa already, and growing monthly, Huge Telecom’s sales reach is extensive.

REGULATORY MATTERS

This past year has been quite a turbulent year for telecommunications in South Africa – certainly as far as the regulatory environment is concerned.

By the end of August last year The Department of Communications was already voicing its concerns about the costs to

communicate in South Africa, saying that the cuts in recent years to the wholesale mobile termination rates

(MTRs), being the fees operators charge each other to carry calls between their networks, hadn’t

gone far enough.

This led to the Independent Communications Authority of South Africa (ICASA) publishing

its “Draft Call Termination Regulations” on 11 October 2013 in terms of Government

Notice 1018 of 2013 and publishing the Call Termination Regulations, 2014 (in terms of Government Notice 65 of 2014) on 4 February 2014.

The legal battle that ensued between Mobile Telephone Networks (Pty) Ltd (MTN), Vodacom (Pty) Ltd (Vodacom) and ICASA was well documented in the press with the courts finally deciding that although the 2014 Call Termination Regulations were unlawful and invalid, the invalidity

CHAIRMAN’S LETTER

Huge Group Limited Integrated Report 2014

It is extremely important that the economics in the mobile broadband market change, both for Huge Telecom and for consumers in general. The consumer case is easy to champion. As the Independent Service Providers Association (ISPA) puts it: “Given that the majority of South Africans currently access broadband services through a mobile device and that the trend towards mobile access will intensify, addressing this market failure has the potential to address the obstacle which affordability presents to achieving the objective of universal service and access to broadband services for all South Africans by 2020.” But without wholesale-to-retail competition (which can only be facilitated by players such as Huge Telecom) this market failure will continue.

BROAD-BASED BLACK ECONOMIC EMPOWERMENT

Huge Group recognises the importance of Broad- Based Black Economic Empowerment (BBEEE) and meeting the requirements of the charter regulating the telecommunications industry – the ICT Charter. The greatest issue facing Huge Group in this regard is representation at a shareholder level. But, with SA’s fragmented communications sector being ripe for consolidation activity, this challenge has the prospect of being overcome. It certainly appears that the telecommunications sector is in for a shakeup, as merger and acquisition activity looms on the horizon, with many rumours circulating in the marketplace. Consolidation is expected, and makes sense.

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and unlawfulness would be suspended for 6 months. This meant that on 1 April 2014, MTRs for calls to MTN and Vodacom’s networks dropped by 50% from 40 cents to 20 cents per minute. The court order has also given ICASA time to re-embark on a regulatory process that is fair. The bottom line is that costs have dropped and are not likely to rise again. With MTR accounting for more than 50% of Huge Telecom’s primary costs, the reduction will have, all other things kept constant, a substantial positive impact on Huge Telecom.

Even with the issue of MTRs temporarily out of the way one can’t help but ponder whether or not the country has focused too much on this issue to the detriment of another pressing issue relevant to the telecommunications landscape: the cost of mobile data. It is this area of mobile communications costs that is arguably more crucial to South Africa’s economic development. While voice tariffs have plunged in the last two years, the average cost of mobile data has not fallen nearly as much. Out-of-bundle data rates dwarf the in-bundle rates available. It is prepaid customers (including the poorest South Africans) who are expected to cough up these preposterous rates to get onto the Internet. In some cases out-of-bundle rates are as high as R2 000 per megabyte. Ironicallly, it is only the wealthy few that are lucky enough to be able to buy large, discounted data bundles or uncapped services, paying as little as a few cents per megabyte. There is something intrinsically wrong with this image, that data pricing in South Africa is skewed currently to prejudice poorer consumers.

The problem with the mobile broadband market in South Africa is lack of a wholesale-to-retail services market in which the MNOs make it possible for service providers (like Huge Telecom) to purchase wholesale broadband, mark it up and resell it at competitive prices. In fact, it is cheaper right now for Huge Telecom to buy mobile broadband in a retail format (less a discount or commission) than it is to buy the same commodity in a wholesale format (on a cost basis). Like an echo from the past, it is these very economic characteristics in the mobile broadband market that until recently plagued Huge Telecom in the voice market.

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In telecommunications, scale is important in order to be competitive and so traditionally smaller operators merge to achieve scale and become more competitive, while bigger players may want to buy out assets. Huge Group expects to be active in some form of telecommunications consolidation with one of the aims being the introduction of meaningful BEE shareholder representation.

CORPORATE FINANCE CONSIDERATIONS

When possible, the Group continues to acquire Huge Group ordinary shares where the cost of the shares is less than the value of the shares, determined by reference to an independent valuation of the Company.

There were 98 961 443 (2013: 105 547 895) ordinary shares of the Company in issue at the start of the financial year. 9 706 926 (2013: 9 646 926) ordinary shares were held by Huge Telecom as treasury shares.

During December 2013 and January 2014, Huge Telecom acquired 9 000 000 Huge Group ordinary shares in the open market at a price of 55 cents per share, for R4 950 000, thereby increasing its shareholding in Huge Group to

18 706 926 ordinary shares.

The Group therefore has a net 80 254 517 ordinary shares in issue after deducting the shares currently held by Huge Telecom.

On 18 December 2013, the Company closed out 80 455 single stock futures contracts over 8 045 500 ordinary

shares of Huge Group and Huge Telecom closed out 3 592 single stock futures contracts over 359

200 ordinary shares of Huge Group.

The Company still has exposure to 3 904 579 ordinary shares underlying contracts for

difference.

CHAIRMAN’S LETTER


The number of ordinary shares that the Group has either acquired and is still holding or to which the Group has economic exposure up to the date of issue of this annual report is 22 611 505 ordinary shares. Therefore, the option currently exists for the Company to reduce the number of shares in issue to 76 349 938.

In broad strokes, since incorporation the Company issued 111 760 000 ordinary shares at a weighted average price of 212.6 cents per share and over the same period the Group repurchased or gained exposure to 35 409 972 ordinary shares at a weighted average price of 191 cents per share.

GOVERNANCE AND KING CODES

Huge Group continues to maintain high standards of corporate governance. This is achieved because of the commitment of all directors and staff of all the group companies.

Our non-executive directors provide independent, robust and valuable input into all spheres of the business. Our board and sub-committees are functioning well and we make judicious use of several leading and respected firms for advice, primarily for matters relating to legal, compliance and reputation management matters.

During the financial year we split the Combined Audit and Risk Committee into a separate Audit Committee and Risk Committee, and the Social and Ethics Committee is now functional in accordance with the requirements of the Companies Act, 2008.

FUTURE PROSPECTS

Huge Telecom continues to grow and fortify its unique position in the telecommunications industry. Its business model is bearing fruit, sales activity is it at the highest levels the company has ever experienced, its distribution footprint is extensive and gross margins are very high. With scale and the augmenting of its product and service portfolio with the inclusion of mobile broadband, the prospects for Huge Group are looking more attractive than ever before.

APPRECIATION

The board of directors with whom I work have once again worked very well together this year and share a passionate commitment to all things Huge. The executive team, the management team and our loyal employees have been remarkable in turning Huge Telecom around successfully. I thank them for their commitment, support and dedication in achieving this turn around. Their combined efforts, energy and commitment are essential ingredients for the continued success of the Company. With the platform that has been built in the last three years, Huge Telecom can only but go from strength to strength.

To our clients and suppliers – who play such a valuable role in our success – we appreciate your loyal support and look forward to strengthening our relationships in the future.

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INVESTMENT HOLDING ACTIVITIES

Huge Group’s investment holding activities, including treasury management, are mandated to maximize the financial position of the Group in the debt and equity markets using cash and derivative-based instruments.

Although Huge Group has not been active in mergers and acquisitions over the last five years, the vision of building a Group that excels in the creation of client, employee and stakeholder value, led by a “Huge” brand and service ethic, remains intact. Opportunities to consolidate a segment of the telecommunications market now exist and Huge Group plans to become active in this regard. Huge Group is also keen to diversify its investment portfolio into other allied industries.

MEDIA ACTIVITIES

Even though the media investments of the Group have been impaired, the Group remains committed to finding opportunities in media that may assist the Group in creating value from these investments.

TELECOMMUNICATIONS ACTIVITIES

Huge Telecom and Huge Mobile are the Group’s principal revenue and profit generators.

Introduction

FY2014 was another important building block in establishing Huge Telecom as the pre-eminent

provider of full suite telephony services to corporate enterprises in South Africa, and in

particular to SMMEs.

Every aspect of the operation is important if Huge Telecom is to remain relevant in

the telecommunications market and so a review of the different parts of the operation is important.

Huge Telecom has made improvements in every area of the business this year and I am proud to share these improvements with you.

CEO’s REPORT


REVIEW OF OPERATIONS

Market positioning

With all of the attention of the South African telecommunications market on SMMEs, it is fortuitous that Huge Telecom’s dominance lies in this segment of the market. From the mobile network operators (Cell C, MTN, Telkom Business Mobile, Virgin Mobile and Vodacom) to the major VoIP operators (Altech Technology Concepts, Internet Solutions, Nashua Communications, Saicom, TeleMasters and Vox Telecom) to the fixed-line operators (Neotel and Telkom), everyone is after the SMME market. It really is the last frontier. The enterprise customers are all taken, the margins generated from enterprise business are very low and the market for enterprise customers grows at a slower rate. This makes the market for SMMEs a ‘holy grail’ of customers and Huge Telecom’s focus on the SMME increases its value in the market.

Huge Telecom provides full suite telephony services to over 7 000 SMMEs. It has no more than a 2.5% exposure to its single largest SMME customer; customer concentration risk is therefore low.

Service offering

Huge Telecom provides a full suite telephony service that integrates comprehensively with a private automated branch exchange (PABX) including line hunting (distributing phone calls from a single telephone number to a group of several phone lines), direct-inward-dial or DID (which is dialling direct to the extension), direct-outward-dial or DOD (which is dialling direct from the extension), Mobex (mobile extensions that are integrated with the PABX) and caller line identity or CLI.

The beauty of Huge Telecom’s service offering lies in its simplicity and ease of installation. These qualities help to fortify the only value proposition available in a commoditised market – service.

Unique value propositions (UVPs)

The full suite telephony service provided by Huge Telecom is founded on extremely fast levels of service. The entire sales cycle, from sales initiation to contract processing, from technology implementation to after sales service and billing, takes only a few days and continuous improvements are being made.

In FY2014 we completed the conversion of our printed Business Services Agreement (pBSA) to an electronic Business Services Agreement (eBSA) and this will have the effect of reducing our sales initiation lead times and contract processing lead times (including credit vetting) of 3 to 5 days to no more than a couple of hours. It also reinforces the link between Huge Telecom and our distribution partners, thereby ensuring that the sales process is seamless and uniform across organisational boundaries.

We are introducing a sales ticketing system in FY2015 in an effort to further reduce the lead times from customer introduction to signature of the eBSA and from contract acceptance to technology implementation.

Huge Telecom also prides itself on having the lowest mean times in the market in terms of executing service calls.

It is Huge Telecom’s vision and strategy that within the next three years lead times will have improved to such an extent that a customer who signs an eBSA in the morning is able to make a telephone call that same afternoon.

Huge Telecom will succeed where the fixed-line operators, MNOs and VoIP providers can’t succeed or fail to succeed - by focusing on providing superior customer service to the SMME segment of the South African telecommunications market.

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Distribution

Without HUGE distribution capacity (i.e. the number of people or organisations promoting or selling one’s service), the benefits of great market positioning, great service offerings and unique value propositions would in all likelihood yield very poor results. It is this aspect of the business of Huge Telecom that separates it from the rest of the competitors in the market who are vying for the attention of the SMME. In the last three years, Huge Telecom has established significant distribution capabilities. Over 350 Business Partners currently sell the company’s product offering on a national basis.

Huge Telecom does not compete with its Business Partners in the supply of PABX or Office Automation (OA) equipment. This is very important. The trust and reputation that Huge Telecom has built in the last 30 months is high. All the other providers of telephony in South Africa have not been able to restrain themselves and have entered the PABX and OA markets. Competing with one’s own distribution cannot be prudent.

During FY2014, we increased the number of Business Partners by 115, from 174 to 289.

We also focused on increasing the activity levels of our Business Partners. Business Partner activity levels measured by the

number of active Business Partners and the average units sold per Business Partner both increased during FY2014

by 150% and 11% respectively.

What is key to revenue growth in the future is the number of active selling Business Partners.

Huge Telecom sees the appointment of an increasing number of Business Partners as an

effective recipe to combat churn. What is for sure is that Business Partner activity

will have a material impact on the sale of new connections and on revenue in the future. This will continue to be a focus point for FY2015 much as it was in FY2014.

There is a lag between the time when Business Partners are appointed and the time sales of new connections accrue from these Business Partners.

CEO’s REPORT


The generating by Business Partners of sales of new connections is a function of the number of active Business Partners. Greater numbers of active Business Partners will result in greater sales of new connections, lower churn and therefore higher net growth and revenue.

The acquisition of new Business Partners is therefore a lead indicator of monthly sales of new connections, which in turn is a lead indicator of Huge Telecom’s primary revenue metric – average revenue per trade weighted day (ARTWD). Huge Telecom is upbeat about its future prospects for revenue growth.

In order to be successful in increasing Business Partner activity levels, the tracking and rewarding of our Business Partners’ activity is a critical component of our sales success. This is another one of our focus points.

Sales

Sales measured by the number of telephone lines sold (excluding churn) increased substantially during the year, to 8 262 units – representing a 226% increase over FY2013 (in FY2013 there was an 88% increase over FY2012).

In the result, average monthly sales of telephone lines also increased during the year under review, from an average of 309 units during FY2013 to an average of 689 units during FY2014 (FY2012: 203 units).

In June 2014, sales of new telephone lines exceeded 1 100 lines for the first time in the company’s history. It is therefore clear that the strategy of selling through Business Partners (which was put into operation some 30 months ago) is gaining momentum. Future prospects look very good and further records are bound to be broken.

The activation of new telephone lines (i.e. our sales performance) should also be considered against the backdrop of the arithmetic average of Huge Telecom’s selling rates – where selling rates have in most instances been higher than those of its competitors. This further underpins the real performance achieved. Fruits of this sales performance will evidence itself in the years ahead.

Churn

Churn is the termination of existing telephone lines and it has an impact on net growth of telephone lines, which is a success indicator for Huge Telecom because it has an impact on revenue.

Huge Telecom operates in an environment in which a certain level of churn has been accepted.

What is important is for the sale of new telephone lines to exceed an acceptable level of churn (based on a percentage of the base of customer telephone lines in force). This is a function of our distribution (the number of active Business Partners selling for Huge Telecom).

If one looks at other markets, like the market for prepaid mobile subscriptions in India, 100% of the market churns in a single year. Therefore, churn represents a normal challenge to operating a telecommunications business.

We have been able to arrest the levels of churn in the business during the period under review. During FY2014 Huge Telecom reduced churn from an average of 362 units per month during FY2013 to an average of 281 units per month (FY2012: 397 units).

While it is impossible to avoid churn, efforts are being made continuously in order to ensure that the services provided by Huge Telecom are competitive, both from a price and a quality of service perspective.

We are of the opinion that we must use service as opposed to price to combat churn.

Revenue

While revenue for FY2014 decreased by 23.56 % when compared to FY2013, this is not an accurate measure of the sales success of the business during the period under consideration – given the compounding effects of historical sales against historical churn as well as the impact of revenue mix. There is about a twelve month lead time between sales activity and its effects on revenue. Net growth or net churn in any period is felt twelve months later.

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The revenue for FY2014 is a result of the sales and churn activity in prior periods.

The telephone calls per trade weighted day and the minutes generated per trade weighted day are much better measures of sales performance and in this year they have been increasing. Telephone calls per trade weighted day were 20% higher in February 2014 when compared to March 2013. Minutes generated per trade weighted day were 8% higher in February 2014 when compared to March 2013. The trend lines continue to move upwards.

The mix between calls to mobile and fixed-line numbers (where prices to the former are higher than to the latter) also changed during the year. This year the mobile to fixed-line mix was 80%:20% when compared to FY2013 where the mix was 89%:11%.

The average selling price for a mobile minute during FY2014 was 93 cents per minute (FY2013: R1.15) while the average selling price for a fixed-line minute over the same period was 38 cents per minute (FY2013: 44 cents).

ARTWD trended higher during FY2014. Huge Telecom pays close attention to ARTWD. This metric is calculated by dividing the revenue for the month by

the trade weighted days in each calendar month. The number of trade weighted days is calculated with reference to working days,

Saturdays, Sundays and public holidays.

Huge Telecom has also been successful in increasing its fixed annuity to variable annuity ratio. The fixed annuity

consists of channel management fees, on account fees, site management fees and line rentals,

which are protected from price compression. Current monthly fixed annuity charges is in

the order of about R1.554 million (FY2013: 1.455 million, providing a rolling profit

contribution of R18.656 million (FY2013: R17.457 million) per annum. This fixed annuity is presently growing at about R120 000 per month.

Supply side economics

The mobile termination rate dropped from 56 cents per minute to 40 cents per minute (a 34% decrease) on 1 March 2013 and this had the effect of substantially reducing the cost of a minute to a mobile destination for FY2014. This had a marked effect on gross profit

margins for the period under review.

CEO’s REPORT


At 28 February 2014, 80% of Huge Telecom’s minutes are procured on a wholesale format (based on originating and terminating costs), while 20% is procured on a retail-minus discount format (FY2013: 75% and FY2012: 25%).

On 1 April 2014, the Independent Communications Authority of South Africa (ICASA) reduced the mobile termination rate from 40 cents per minute to 20 cents per minute – a 50% reduction. With terminating costs exceeding originating costs, the impact of this decrease on FY2015 will be significant.

The costs related to router equipment, which are accounted in the statement of financial performance by way of a depreciation charge, continue to rise and are a concern. Investigations are under way to either source routers at a lower cost or to manufacture routers ourselves. The current cost of router equipment per channel exceeds R1 300.

Gross margins

Gross margins before direct expenses (such as consumables and distribution costs) increased again this year, by 14% from 41% to 55%.

Overheads

The three primary overhead costs in Huge Telecom were well controlled during the year. Staff costs increased by 7,4% in line with inflation. Depreciation and amortisation increased by 4% as a result of increased capital expenditure on router equipment.

FUTURE PROSPECTS

Huge Telecom has found a niche in the SMME segment of the market but with margins such as those currently being enjoyed and with a desire by every other telecommunications operator in South Africa to make inroads into the SMME segment of the market, Huge Telecom will have to ensure that it continues to be ahead of the game. While Huge Telecom’s business model and approach to the market is unique currently, it may not take long before other competitors attempt to replicate Huge Telecom’s model for success.

Huge Telecom is currently the only provider of full suite telephony to corporate South Africa using GSM technology and fixed-cellular customer premises equipment (CPE). It therefore has a leading position.

The VoIP operators use legacy fixed-line, copper-based, data last-miles to provide telephony.

They convert voice to data for transmission and they use their very competitors to supply this transmission.

Most VoIP participants are experiencing substantial pressure from service degradation such as that caused by throttling and are unable to demonstrate the advantages of this last-mile connectivity service, which is far more complicated than the plug and play of a fixed-cellular solution that leverages GSM. Few commentators understand that this VoIP is simply fixed-line, last-mile connectivity using a competitior. To Huge Telecom, VoIP is not sustainable as a business model because it is crystal clear that the money in South Africa is in mobile and not fixed-line. The cash that MTN and Vodacom hold on their balance sheets is significant. In addition, the lowest cost producers of minutes and megabytes in the industry are the MNOs. Why? Because the cost per unit of voice (in minutes) and the cost per unit of data (in megabytes) is a function of the total cost of ownership of a network divided by the total units manufactured. It is abundantly clear that because Vodacom and MTN’s subscriber bases are the largest, they control more of the termination market for voice and data, and as such they are the lowest cost producers in the country. It therefore makes no sense for Huge Telecom to build its own network as it would never be able to drive down its costs of manufacture to the levels of Vodacom, MTN and Cell C. It is cheaper to buy wholesale access from the lowest cost producers – the MNOs.

18

The MNOs also have a desire to provide telephony solutions to corporate enterprises and particularly, SMMEs. However, this is easier said than done. We used to see a lot of Neotel three to four years ago but this was limited to high-end enterprise customers where volumes are large and margins are thin. With Vodacom’s recent interest in Neotel things have become even quieter from Neotel, and if Vodacom is successful in acquiring Neotel, it will eliminate another competitor from the market. At the SMME end of the market, Huge Telecom seldom comes across Neotel.

Nashua Mobile and Altech Autopage – though not using the same business model – are the only remaining competitors to Huge Telecom who use GSM and fixed-cellular CPE. However, holding on to least cost routing (LCR) is probably futile. In any event, Nashua Mobile has just sold its mobile subscriber base back to MTN and Vodacom. Once again, further competition is being eliminated.

That leaves Telkom – who remains Huge Telecom’s most material competitor. However, Telkom provides fixed-line telephony and fixed-line telephony is declining with many residential customers choosing fixed-mobile. It seems that t at the SMME end of the corporate market Huge Telecom is finding that many

customers are more than willing to make the migration to GSM solutions.

As regards new entrants to our market – there are certainly a number of barriers to entry. Scale is important and so too is

distribution. Supply side arrangements are important. Other aspects of the business, like the need for a

reliable rating and billing engine are also critical.

IN CLOSING

Huge Telecom has built a strong investment case in the last three years.

It has created a niche in the telecommunications market focusing on the SMME end of the corporate telephony market.

It is the only provider of full suite telephony (incorporating all the enhanced network features listed above) using GSM and fixed-cellular CPE. In many ways, it has a dominant position in its chosen market.

There are barriers to entry for new entrants, like scale and rating and billing capability.

CEO’s REPORT


Sales growth rates are high and so too are gross margins. The business is 100% annuity based and monthly sales growth has a compounding effect.

Huge Telecom only has a few direct competitors.

Huge Telecom has an extensive distribution network of well over 300 Business Partners.

Its unique value propositions include a passionate focus on customer service, short customer initiation timeframes, short contract processing times as well as short implementation times. Mean times to complete service calls are very short. At Huge Telecom, we have an honest and delivery focussed attitude. We keep our customers because it’s all about service – and we are very good at it. You live or die by your reputation and we’ve earned a reputation for great customer service.

Huge Telecom also has a sustainable supply of wholesale-based, last-mile access services at competitive costs and it faces a declining wholesale cost market for origination and termination. By using all the MNOs it has the most pervasive network in South Africa.

It has proven and reliable technology that is simple and easy to install.

Working capital requirements are low, there is no requirement to carry stock, services are acquired in real time, and there is extremely low client concentration risk with no client accounting for more than 2.5% of the business.

It has a low operational risk environment and its credit control and debtors’ collection processes remain strong points.

Huge Telecom focuses on the things that count – like happy customers and a happy workforce.

For FY2015 Huge Telecom will be focusing on scale and reducing the cost of CPE. The value of scale is huge given the operational leverage that exists. Reducing the cost of CPE will allow Huge Telecom to grow at a significantly faster pace.

Huge Telecom intends expanding its offerings to include mobile broadband.

I would like to extend my gratitude to my executive team, the management team and our staff - without them we would not have developed and implemented the investment case over the last three years and the future would not be as rosy.

To our loyal and very valued customers, who have stuck with us through the lean times, we hope that you enjoy the best alternative last-mile corporate telephony service available in South Africa.

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MANAGEMENT TEAM

Huge Group Limited Annual Report 2014

1. Michael (“Mike”) Nyschens (44) Business Projects Manager, NDip Electrical Engineering (L/C), BTech Digital Technology Joined: 1 August 2008

2. Johannes (“Johann”) Alberts (36) Managing Executive – Commercial Operations, Cert in Fraud Examination, Adv Cert in Fraud Examination, BComm (Internal Audit) – in progress Joined: 5 June 2012

3. Heather Mouton (43) General Manager – Credit, Dip Credit Management Joined: 10 November 2008

4. Ronald Mushonga (31) General Manager – Finance, BComm, BAcc, CA (SA) Joined: 1 March 2012

5. Amilcar (“Amil”) de Moura (59) Managing Executive – Information Systems, NDip Information Technology Joined: 15 October 2008

6. James Herbst (43) Chief Executive Officer, BComm, BAcc, CA (SA), CFA Joined: 1 September 2006

1 2 3 4 5 6

7. David (“Dave”) Deetlefs (58) Chief Operating Officer, BComm, HDip Acc, CA (SA) Joined: 1 March 2012

8. Dion Willis (46) Managing Executive – Gauteng, BComm Joined: 19 October 2009

9. Geovanna Sutherland (40) Managing Executive – KwaZulu-Natal, Dip Business Management Joined: 18 June 2003

10. Dinesh (“Dean”) Naidoo (44) General Manager – Operations Joined: 1 July 2009

11. Jean Tyndale-Biscoe (43) General Manager – Corporate Resources, BA (Law), HDip Company Law Joined: 7 May 2012

12. Robyn Broughton (42) Managing Executive – Cape, Dip Marketing and Sales Joined: 17 July 2011

7 8 9 10 11 12

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INTRODUCTIONThe Board of Huge is pleased to present to stakeholders of the Company the fourth sustainability report prepared in terms of recent developments and guidelines in the international corporate reporting arena. As stated in the previous Annual Reports, the Board understands that sustainability reporting is an on-going task which requires continuous refinement. The Board has therefore built on previous Sustainability Reports, and shall continue to do so over the next reporting periods.

SCOPE OF REPORTAll 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.

INTRODUCTIONAll 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 BOARDStructure 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, a Remuneration

Committee, and a Social and Ethics Committee.

Changes to the Board post its year endThe Board took a decision towards year end, to split the Combined Audit and Risk Committee into two separate committees, namely an Audit Committee and a Risk Committee. This decision was will be implemented with effect from the financial year commencing 1 March 2014.

SUSTAINABILITY REPORT


INDEPENDENCE OF THE BOARD AND BOARD BALANCE

The Board of Huge comprises two 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 non-executive directors ensure 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.

As at the date of these AFS, all of the directors had attended the Directors’ Induction Programme as stipulated by the JSE’s Listings Requirements.

In line with best practice, the roles of Chairman and Chief Executive Officer are separated. During the course of the year, the designation of the Chairman changed from “Executive” to “Non-executive”, due to the disposal by Huge of three shares in Ambient, which resulted in Ambient becoming an associate company as against a subsidiary, which it had been prior to the disposal.

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

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.

The Board is responsible ultimately 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 40 of this report.

APPOINTMENTS TO THE BOARD

There is a formal and transparent procedure with regard to appointments to the Board and 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 Listings Requirements, and their appointments are ratified by shareholders at the Annual General Meeting of the Company immediately following their appointment.

24

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.

AUDIT AND RISK COMMITTEE

During the year under review, Huge had a Combined Audit and Risk Committee, of whom the members during the year were Mr DG Gammie, who serves as the Chairman of the Combined Audit and Risk Committee, Mr MR Beamish and Mr SP Tredoux. On 20 May 2013, Mr Beamish resigned from the Board, and his position on the Combined Audit and Risk Committee was filled by Mr AD Potgieter.

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.

Doctor Steven Firer has been contracted as a consultant to the Combined Audit and Risk Committee with regard to

the interpretation and application of IFRS.



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 breakdowns in control 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.

The Combined Audit and Risk Committee has reviewed the qualifications and expertise of the Group Financial Director, Mr Deetlefs, and is satisfied as to his experience and expertise as required to fulfil this position.

The external auditor of the Company, being BDO South Africa Incorporated, is invited to attend all meetings, and has 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, 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 control. 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.

REMUNERATION COMMITTEE

The Remuneration Committee members were Mr MR Beamish (Chairman), Mr AD Potgieter and Mr VM Mokholo. After the resignation of Mr Beamish on 20 May 2013, Mr AD Potgieter became the Chairman of the Remuneration Committee, and Mr VM Mokholo became a member of the Remuneration Committee.

26

Executive directors of the Company are invited to attend when deemed necessary and/or appropriate by the committee.

The Remuneration 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; and

• ensuring that levels of remuneration are market-related and in line with best practices and industry standards.

The Remuneration Committee meets at least once a year, and all meetings are, in addition, attended by the Company Secretary.

SOCIAL AND ETHICS COMMITTEE

The Social and Ethics Committee consists of Mr D Deetlefs, Mr SP Tredoux (Chairman) and the Company Secretary. Please refer to the report

of the Social and Ethics Committee as set out on page 33 of the Integrated Report.

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:



Social and Ethics Committee

Renumeration Committee

SP Tredoux / 100%

SP Tredoux / 100%

D Deetlefs/ 100%

JC Herbst / 100%

Company Secretary / 100%

AD Potgieter / 100%

MR Beamish / 100%

Designated advisor / 100%

Company secretary / 85.7%

VM Mokholo / 100%

Meeting attendanceBoard meetings

SP Tredoux / 100%

JC Herbst / 100%

AD Potgieter / 100.0%

VM Mokholo / 100%

D Deetlefs / 100%

MR Beamish / 100%

DR Gammie / 100%



Combined Audit and Risk Committee

SP Tredoux / 100%

JC Herbst / 100%

AD Potgieter / 100%

VM Mokholo / 66.6%

D Deetlefs / 100%

MR Beamish / 50%

DR Gammie / 100%



Auditor / 85.7%

Attended

Not attended

Note:

• MR Beamish resigned from the Board on 20 May 2013.

• The Company Secretarial function was outsourced to a professional firm of Company Secretaries for the 27 November 2013 meetings at which the Group Company Secretary was unavailable.

DR Gammie / 100%

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FEES PAID TO NON-EXECUTIVE DIRECTORS

The fees paid to non-executive directors are discussed by the Remuneration Committee and recommended to the Board. With effect from 1 March 2013, and in line with the King III report on Corporate Governance, the non-executive directors have been paid a monthly retainer of R16 000 per month, and the non-executive chairman, a monthly retainer of R27 000 per month. The current meeting fees are given in the table below:

Chairman MemberBoard 11 000 11 000Board Committee 11 000 11 000

As has been the custom in the past, the Board continues to schedule Board Committee and Board meetings on the same days, in order to ensure that the cost of non-executive director remuneration is 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 are to 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 38 of the AFS.

ACCOUNTING AND INTERNAL CONTROLS

The external auditor, BDO South Africa Incorporated, is responsible for reporting on whether the Annual

Financial Statements are fairly presented in conformity with IFRS. The external auditor

offers reasonable but not absolute assurance on the accuracy of financial

disclosures. The preparation of the AFS 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 AFS may be relied upon, and for preparing the AFS.



The Board acknowledges the need to rigorously review the accuracy and adequacy of the accounting systems and of internal controls.

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 development, an Internal Audit function is 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 IN COMPANY SHARES

The Company enforces a restricted period for dealing in its shares by directors or their associates. In addition, no director or 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, and the Company has a strict insider trading policy in place.

COMPANY SECRETARY

The Company Secretary is Jean Tyndale-Biscoe, a full-time employee 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 and Board Committee meetings.

The Board has satisfied itself as to the competence, qualifications and experience of the Company Secretary, who holds Bachelor of Arts (Law) degree, an Advanced Certificate in Company Law and has ten years experience both as a JSE Sponsor Executive and Designated Advisor and in the company secretarial field.

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.

30

Effective and independent

The Board is responsible for the governance of risk and setting levels of risk tolerance

The Board ensures that risk assessments and monitoring is performed on a continual basis

Chaired by an independent non-executive director

The Board delegates the process of risk management to management

Management implements appropriate risk responses

A combined assurance model is applied to improve efficiency in assurance activities (note 3)

Frameworks and methodologies are implemented to increase the probability of anticipating unpredictable risks

Sufficient risk disclosure to stakeholders

Suitably skilled and experienced non-independent non-executive directors

The Board receives assurance on the effectiveness of the risk management process

Oversees integrated reporting

The Risk Committee assists the Board in carrying out its responsibilities

Satisfies itself on the expertise, resources and experience of the Company’s finance functions

Oversees internal audit (note 4)

Oversees the external audit process

Integral to the risk management process

Reports to the Board and shareholders on how it has discharged its duties

GOVERNANCE ELEMENT AND ASSOCIATED PRINCIPLES

AUDIT COMMITTEE

GOVERNANCE OF RISK



Effective leadership based on an ethical foundation

The Board is responsible for information technology (IT) governance

Effective management of company’s ethics

Management is responsible for the implementation of an IT governance framework

Responsible corporate citizenship

IT is an integral part of the company’s risk management

IT is aligned with the performance and objectives of the Company

Assurance statement on ethics in integrated annual report

The Combined Audit and Risk Committee assists the Board in carrying out its IT responsibilities

The Board monitors and evaluates significant IT investments and expenditure

The Board ensures that the Company complies with relevant laws

Appreciation that stakeholders’ perceptions affect the Company’s reputation

Compliance risk forms an integral part of the Company’s risk management process

There is an appropriate balance between its various stakeholder groupings

The Board and directors have a working understanding of the relevance and implications of non-compliance

Transparent and effective communication to stakeholders

Equitable treatment of stakeholders

The Board has delegated to management the implementation of an effective compliance framework

Delegated to management to proactively deal with stakeholder relationships

Disputes are resolved effectively and timeously

IT assets are managed effectively

ETHICAL LEADERSHIP AND CORPORATE CITIZENSHIP

GOVERNANCE OF INFORMATION TECHNOLOGY

COMPLIANCE WITH LAWS, CODES, RULES AND STANDARDS

GOVERNING STAKEHOLDER RELATIONSHIPS

KEY

Under review / do not complyComply Partially comply

32


Ensures the integrity of the Company’s integrated annual report

Sustainability reporting and disclosure is independently assured

Sustainability reporting and disclosure is integrated with the Company’s financial reporting

The Board is the focal point for, and custodian of, corporate governance

Appointment of well-structured committees and oversight of key functions

Directors act in the best interests of the Company

Directors and executives are fairly and responsibly remunerated

Framework for the delegation of authority has been established

The Company’s remuneration policy is approved by its shareholders

Directors are appointed through a formal process

Strategy, risk, performance and sustainability are inseparable

The Board is assisted by a competent, suitably qualified and experienced Company Secretary

The Chairman of the Board is an independent non-executive director (note 1)

INTEGRATED REPORTING AND DISCLOSURE BOARDS AND DIRECTORS

The Board is comprised of a balance of power, with a majority of non-executive directors who are independent

Formal injunction and on-going training of directors is conducted

Regular performance evaluation of the Board, its committees and the individual directors (Note 2)

An agreed governance framework between the group and its subsidiary boards is in place

Remuneration of Directors and Senior Executives in disclosed


Notes:

1. The disposal of three shares in the issued share capital of Ambient resulted in the Executive Chairman’s role becoming a non-executive function.

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 acknowledges that stakeholders comprise employees, customers, suppliers, shareholders and others, and is committed to on-going and effective communication with all stakeholders, subscribing to a policy of open and timeous communication. 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, or to contact the Company Secretary directly at [email protected].

REPORT OF THE SOCIAL AND ETHICS COMMITTEE

The Social and Ethics Committee for the year under review consisted of the following members:

MR SP Tredoux (Chairman) – Lead Independent Non-executive Director

Mr D Deetlefs (Member) - Group Financial Director

Mrs JM Tyndale-Biscoe (Member) – Group Company Secretary

The Social and Ethics Committee has a mandate and frame of reference which has been prepared in terms of the Act, the ten principles as set out in the United Nations Global Compact, the OECD recommendations regarding corruption, the Employment Equity Act and the Broad Based Black Economic Empowerment Act. The Committee is responsible for:

• Monitoring the company’s level of compliance with social, ethical and legal requirements and best codes of practice;

• Bringing to the attention of the Board any relevant matters within the scope of its mandate; and

• Reporting to shareholders on matters that fall within the scope of its mandate.

The Company subscribes to the ten principles of the United Nations Global Compact, which principles include core values relating to Human Rights, Labour, the Environment and Anti-Corruption.

Following on from these principles, the Social and Ethics Committee therefore ensures that the Company respects the rights of all of its stakeholders, implements fair labour practices, works within its environment in a responsible manner, and is opposed to all forms of bribery and corruption. Any matters of concern in this regard are brought to the attention of the Committee, and dealt with in the appropriate manner. The Committee is happy to report that during the year under review, no adverse matters were reported to the Social and Ethics Committee.

Report of the Combined Audit and Risk Committee

34

REPORT OF THE COMBINED AUDIT AND RISK COMMITTEE

The Combined Audit and Risk Committee for the year under review included the following non-executive directors as members:

Mr DR Gammie (Chairman) – Independent non-executive director

Mr SP Tredoux (Member) – Lead Independent non-executive director

Mr MR Beamish (Member) – Non-executive director (resigned 20 May 2013)

Mr AD Potgieter (Member) - Non-executive Director (appointed 20 May 2013)

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’s responsibilities for the year ended 28 February 2014.

The role of the Combined Audit and Risk Committee is to assist the Board 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 2014 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 its Charter during the 2014 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 2014 financial year. In addition, the committee has established a policy and procedures with regard to use of the external auditor for non-audit services.

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 development, an Internal Audit function was not considered necessary. Since the Company’s listing the need for an Internal Audit function has been 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 28 February 2014, its financial performance for the year ended 28 February 2014, the changes in equity and cash flows for the period then ended, in accordance with IFRS and the Companies Act.

Dennis Robert GammieChairman of the Combined Audit and Risk Committee

CONSOLIDATED AND SEPARATE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 FEBRUARY 2014

36

Country of incorporation and domicile South Africa

Nature of business and principal activities Investment holding company holding investments in subsidiary companies and a joint venture company operating in the telecommunications, media, technology and software industries

Directors David Deetlefs Dennis Robert Gammie James Charles Herbst Vincent Mokhele Mokholo Anton Daniel Potgieter Stephen Peter Tredoux Registered office 3M Building 1st Floor, East Wing, 146a Kelvin Drive, Woodmead, 2191

Business address 3M Building 1st Floor, East Wing, 146a Kelvin Drive, Woodmead, 2191

Postal address PO Box 1585, Kelvin, 2054

Auditors BDO South Africa Incorporated

Business address 22 Wellington Road, Parktown, 2193

Postal address Private Bag X60500, Houghton, 2041

Group Company Secretary Jean Tyndale-Biscoe

Business address 3M Building 1st Floor, East Wing, 146a Kelvin Drive, Woodmead, 2191

Postal address PO Box 1585, Kelvin, 2054

Tax reference number 9378909155

VAT reference number 4390253955

Level of assurance These Consolidated and Separate Annual Financial Statements have been audited in compliance with section 30(2)(a) of the Companies Act of South Africa.

Preparer The Consolidated and Separate Annual Financial Statements were compiled internally under the supervision of:

David Deetlefs B Com, H Dip Acc, CA (SA)

Published 25 July 2014


INDEX

The reports and statements set out below comprise the Consolidated and Separate Annual Financial Statements presented to the shareholders:

Index Page

Definitions 38

Directors’ Responsibilities and Approval 40

Group Company Secretary’s Certification 41

Directors’ Report 42

Independent Auditors’ Report 51

Statement of Financial Position 52

Statement of Comprehensive Income 53

Statement of Changes in Equity 54

Statement of Cash Flows 56

Accounting Policies 57

Notes to the Consolidated and Separate Annual Financial Statements 73

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DEFINITIONS

38

In these Consolidated and Separate Annual Financial Statements, unless it otherwise indicates a contrary intention, an expression which denotes a gender includes the other gender, a natural person includes a juristic person and vice versa, the singular includes the plural and vice versa, and the expressions in the first column have the meaning stated opposite them in the second column:

“AFS” Consolidated Annual Financial Statements in the case of the Group, and Separate Annual Financial Statements in the case of the Company;

“AltX” the Alternative Exchange of the JSE;

“Ambient” Ambient Mobile Proprietary Limited, registration number 2008/001288/07, a 50.2% held subsidiary company of Huge Telecom up until 31 January 2014, and a 49.9% subsidiary company of Huge Telecom with effect from 1 February 2014 due to common control;

“the Board” the board of directors of the Company as constituted from time to time;

“CFDs” Contracts for Difference;

“CGU” cash generating unit;

“CIBs” Connection Incentive Bonuses;

“the Commissioner” the Commissioner of the Companies and Intellectual Property Commission;

“the Companies Act” the Companies Act of South Africa;

“DIBs” Discretionary Incentive Bonuses;

“EBIT” earnings before interest and taxation;

“EPS” earnings per share;

“Eyeballs” Eyeballs Mobile Advertising Proprietary Limited, registration number 2007/004818/07, and a 77% owned subsidiary company of Huge;

“Eyeballs Software” internally generated computer software developed by Eyeballs;

“Eyeballs Technology” intangible asset recognised at group level on acquisition of Eyeballs;

“FCR” Fixed Cellular Routing;

“FirstRand Bank” FirstRand Bank Limited, registration number 1929/001225/06, and the bankers to Huge;

“FSB” the Financial Services Board;

“functional currency” South African Rands;

“Gonondo” Gonondo Telecom Proprietary Limited, registration number 2006/027671/07, and a 50% held joint venture company, which 50% is held by Huge Telecom;

“Goodwill” the goodwill acquired by Huge on the acquisition of Huge Telecom and Huge Mobile;

“Group” Huge and its subsidiary companies;

“HEPS” headline earnings per share;

“Herbst” James Charles Herbst, a director of Huge;

“Huge Cellular” Huge Cellular Proprietary Limited, registration number 2008/004068/07, and a wholly-owned subsidiary company of Huge Telecom;

“Huge” or “the Company” Huge Group Limited, registration number 2006/023587/06, and a company of which the shares are listed on the AltX;

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“Huge Mobile” Huge Mobile Proprietary Limited, registration number 2002/022642/07, and a wholly-owned subsidiary company of Huge;

“Huge Software” Huge Software Proprietary Limited, registration number 2008/006066/07, and a wholly-owned subsidiary company of Huge;

“Huge Telecom” Huge Telecom Proprietary Limited, registration number 1993/003902/07, and a wholly-owned subsidiary company of Huge;

“IFRS” International Financial Reporting Standards;

“JSE” the JSE Limited, registration number 2005/022939/06;

“Kimber” Jonathan Peter Kimber, a former director of Huge Telecom;

“LCR” Least Cost Routing;

“Legacy” Le Gacy Telecom (FRA) Proprietary Limited, registration number 2007/033510/07, and a 49.67% held subsidiary company of Huge Telecom due to common control;

“LR” the Listings Requirements of the JSE;

“MNOs” Mobile Network Operators;

“MOI” Memorandum of Incorporation;

“MTNSP” MTN Service Provider Proprietary Limited, registration number 1993/002648/07;

“MTNSP dispute” the legal dispute between MTNSP and Huge Telecom;

“MTR” mobile termination rate;

“MTS Grouping” being the CGU comprising Huge Software and Eyeballs;

“MVS” Managed Voice Solutions Proprietary Limited, registration number 2008/006162/07;

“Nedbank” Nedbank Limited, registration number 1951/000009/06;

“Nedgroup Securities” Nedgroup Securities Proprietary Limited, registration number 1995/012240/07, a wholly-owned subsidiary company of Nedbank Group Limited;

“Pacific Breeze” Pacific Breeze Trading 417 Proprietary Limited, registration number 2006/008999/07;

“Potgieter” Anton Daniel Potgieter, a director of Huge;

“SARS” the South African Revenue Service;

“Shares” ordinary par value shares of R 0.0001 each;

“SSFs” or “SSF contracts” Single Stock Futures;

“Telecom Grouping” being the CGU comprising Huge Telecom, Huge Mobile, Huge Cellular, Ambient and Legacy;

“Telemasters” Telemasters Holdings Limited, registration number 2006/015734/06;

“Telkom” Telkom SA SOC Limited, registration number 1991/005476/30;

“VAT” Value Added Tax;

“Vodacom” Vodacom Proprietary Limited, registration number 1993/003367/07;

“VoIP” Voice over Internet Protocol; and

“Watermark” Watermark Securities Proprietary Limited, registration number 1999/010690/07.


DIRECTORS’ RESPONSIBILITIES AND APPROVAL

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The directors are required in terms of the Companies Act to maintain adequate accounting records and are responsible for the content and integrity of the AFS and related financial information included in this report. It is their responsibility to ensure that the AFS fairly present the state of affairs of the Group as at the end of the financial year and the results of its operations and cash flows for the period then ended, in conformity with IFRS. The external auditors are engaged to express an independent opinion on the AFS.

The AFS are prepared in accordance with IFRS 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 Group and place considerable importance on maintaining a strong internal financial control environment. To enable the directors to meet these responsibilities, 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 in order 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 that 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 on identifying, assessing, managing and monitoring all known forms of risk across the Group. While operating risk cannot be fully eliminated, the Group endeavours to minimise it by ensuring that appropriate infrastructure, controls, systems and ethical behaviour are applied and managed within predetermined procedures and constraints.

The directors are of the opinion, based on the information and explanations given by management, that the system of internal financial control provides reasonable assurance that the financial records may be relied on for the preparation of the Consolidated and Separate Annual Financial Statements. However, any system of internal financial control can provide only reasonable, and not absolute, assurance against material misstatement or loss.

The directors have reviewed the Group’s cash flow forecast for the next 12 months from date of approval of the AFS and, in the light of this review and the current financial position, they are satisfied that the Group has or has access to adequate resources to continue in operational existence for the foreseeable future.

The external auditors are responsible for independently examining and reporting on the AFS. The AFS have been examined by the Group’s external auditors and their report is presented on page 51.

The AFS set out on pages 42 to 116, which have been prepared on the going concern basis, were approved by the board of directors on 25 July 2014 and were signed on its behalf by:

James Charles Herbst David Deetlefs

41

GROUP COMPANY SECRETARY’S CERTIFICATION

Declaration by the Group Company Secretary in respect of section 88(2)(e) of the Companies Act

In terms of section 88(2)(e) of the Companies Act, as amended, I certify that the Group has lodged with the Commissioner all such returns as are required of a public company in terms of the Companies Act and that all such returns are true, correct and up to date.

Jean Tyndale-Biscoe Group Company Secretary

25 July 2014


DIRECTORS’ REPORT

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The directors submit their report for the year ended 28 February 2014.

1. Nature of business

Main business and operations

Huge is an investment holding company holding investments in subsidiary companies and a joint venture company operating in the telecommunications, media, technology and software industries. The Company maintains a listing on the AltX and conducts its business within the Republic of South Africa.

The Group comprises the following operations –

Telecom Grouping

The Telecom Grouping is engaged in providing voice, messaging, data and video connectivity services using wireless, GSM-based, fixed-cellular, last-mile solutions to residential consumers and a wide range of corporate clients, ranging from large corporate to small and medium enterprises.

MTS Grouping

In the prior year, Huge Software acquired the Group’s proprietary billing and rating software system from Huge Telecom, and will continue to develop and enhance such software for the benefit of the companies in the Group and for third parties to which it provides such services. During the year under review, Huge Software acquired router equipment from Huge Telecom and will in future rent this equipment to Huge Telecom.

Eyeballs 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. During the year under review, Eyeballs did not generate any revenue and the development of its software has been curtailed. Accordingly, the Eyeballs Technology has been impaired in full.

2. Financial results

The financial position and the financial performance of the Company and the Group are set out in the attached AFS on pages 52 to 116.

3. Going concern

The Board is of the opinion that the business of the Company and the Group will continue to operate as a going concern in the twelve month period following the date of the approval of these AFS. In reaching this opinion, the Board has considered the following factors:

• The improvement in the Group’s operating profitability recorded in the year ended 28 February 2014;

• The expected further improvement in the Group’s profitability as reflected in the budget for the year that will end on 28 February 2015, which budget was approved by the Board during February 2014;

• The impact of the MTNSP dispute and the possible settlement thereof. Further details in this regard are provided in note 15 of this Report and note 41 of the Notes to the AFS;

• The continuing impact of lower MTRs has been carefully considered by the Board and it is the opinion of the Board that the strategies identified and implemented by the Group have optimised the advantages accruing to the Group as a result of lower MTRs;

• The terms of trade received by Huge Telecom, Huge Cellular and Huge Mobile from their major suppliers;

• Suretyships in aggregate amounting to R20.1 million have been provided by Messrs. JC Herbst, VM Mokholo and AD Potgieter in favour of FirstRand Bank as security for certain banking facilities provided by FirstRand Bank to Huge Telecom;

• The current credit facilities of the Group are sufficient to meet the ongoing funding requirements of the Company and its subsidiary companies; and

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• Huge Telecom is party to certain loan agreements with FirstRand Bank. Correspondence received by the Group records that the facilities remain in place and will be reviewed again on an ad hoc basis. Accordingly the utilised portion of such banking facilities remains reflected as a current liability.

Taking into consideration the foregoing matters of record, as well as the future cash flow projections of the Group, the Board believes that 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 AFS. Accordingly, the Company and the Group continue to adopt the going concern basis of preparing these AFS.

4. Borrowing powers

In terms of the MOI of the Company, the directors may exercise all the powers of the Company to borrow money, as they consider appropriate.

5. Intangible assets

The value of the intangible asset, being the Eyeballs Software, was fully impaired in the prior year. The directors have considered the carrying value of the Eyeballs Software in the light of present and future business prospects of Eyeballs and based on appropriate business judgement, have determined that the carrying value should continue to be fully impaired.

6. Interest in subsidiary companies

The attributable interest of the Company in the net profit/(losses) after taxation of each subsidiary company was:

Name of subsidiary % shareholding 2014 2013

Huge Telecom 100.00 13 507 457 (7 784 877)Huge Mobile 100.00 (1 824 300) (2 176 037)Huge Cellular 100.00 1 195 934 (1 809 660)Huge Software 100.00 3 880 275 1 984 607Eyeballs 77.00 (794 670) (7 217 180)Ambient 49.90 (643 300) (530 994)Le Gacy 49.67 (29 626) (189 214)

7. Goodwill

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 directors of Huge continue to assess the industry and the possible changes that could impact the Goodwill.

8. Authorised and issued share capital

Authorised share capital

1 000 000 000 Shares.

Issued share capital

The Company has since incorporation issued a total of 111 760 000 Shares. This includes 99 646 601 Shares issued on 7 August 2007, being the date on which the Company listed on the AltX.

The number of Shares in issue at 28 February 2014 amounts to 98 941 443 (2013: 98 941 443).


DIRECTORS’ REPORT

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8. Authorised and issued share capital (continued)

Repurchase by the Company of its Shares and acquisitions by the Company’s subsidiary companies of Shares of Huge

At the last annual general meeting of the Company held on 12 July 2013, shareholders gave the Company or any of its subsidiary companies a general authority, in terms of section 48 of the Companies Act, and by way of special resolution, to repurchase or acquire the Shares of Huge. This general authority remains valid until the next annual general meeting, which is to be held on 19 August 2014. Shareholders will be requested at that meeting to consider a special resolution to renew this general authority, which will remain valid until the following annual general meeting.

Shares of the Company repurchased by the Company

During the year the Company did not repurchase any of its own Shares (2013: 927 100 Shares). The Company has, since incorporation, repurchased and cancelled in aggregate 12 798 557 (2013: 12 798 557) Shares.

Shares of the Company acquired and held by Huge Telecom

The Group (through Huge Telecom) holds 18 706 926 (2013: 9 706 926) Shares as treasury shares.

During the year, Huge Telecom acquired 9 000 000 (2013: 60 000) Shares in the open market for a consideration of R4 950 000 (2013: R66 077), equating to a price of 55 cents (2013: 74 cents) per Share.

The acquisition of the Shares as referred to above has resulted in Huge Telecom holding 18.9% of the issued share capital of Huge. It is a contravention of section 48 (2) of the Companies Act for any company’s subsidiaries to hold, in total, more than 10% of the number of shares issued by the holding company. The Group’s auditor reported this matter to the Independent Regulatory Board of Auditors on the basis that they had reason to believe that a Reportable Irregularity may have taken place in terms of section 45 of the Auditing Profession Act 45 of 2005 (APA). This matter was also brought to the attention of the directors of the Company, and has been reported in the Auditors' Report to these AFS. Since the year end Huge Telecom declared a dividend in specie of 9 060 000 Shares. Accordingly, the Group’s auditors are satisfied that there is no longer a possible Reportable Irregularity (to the extent that a Reportable Irregularity as defined in the APA had in fact taken place).

A detailed summary of the acquisitions of Shares by the Company and by its subsidiary company, Huge Telecom, is set out in note 17 of the AFS on page 91.

9. Derivative contracts acquired and closed out by the Group

The Group makes use of derivative contracts, including SSFs and CFDs, to provide sufficient cash funds should the directors decide to repurchase Shares in the future at an increased share price. The SSFs in question are physically-settled SSFs.

SSF contracts acquired and closed out by the Company

One SSF provides exposure to 100 underlying reference instruments – in this case, 100 Shares in Huge.

Transaction date Number of Spot price Value of Margin SSF per Nominal posted/ contracts underlying Exposure (refunded) acquired/ reference acquired/ (closed out) instrument (reduced) (in cents) (R) (R)

Opening balance: 1 March 2013 80 455 362.00 29 124 710 29 124 710Closed out on: 18 December 2013 (80 455) 55.00 (29 124 710) (29 124 710)

Closing balance: 28 February 2014 - - -

Accordingly the Company is no longer the holder of any SSFs.

45Huge Group Limited Annual Report 2014

9. Derivative contracts acquired and closed out by the Group (continued)

SSF contracts acquired and closed out by Huge TelecomOne SSF provides exposure to 100 underlying reference instruments – in this case, 100 Shares in Huge.

Transaction date Number of Spot price Value of Margin SSF per Nominal posted/ contracts underlying Exposure (refunded) acquired/ reference acquired/ (closed out) instrument (reduced) (in cents) (R) (R)

Opening balance: 1 March 2013 3 592 370.00 1 129 871 1 129 871Closed out on: 18 December 2013 (3 592) 55.00 (1 129 871) (1 129 871)

Closing balance: 28 February 2014 - - -

Accordingly Huge Telecom is no longer the holder of any SSFs.

CFDs acquired by Huge Telecom

A CFD provides exposure to an equivalent number of underlying reference instruments – in this case, one Share in Huge.

Transaction date Number of Spot price Value of Margin CFDs per Nominal posted/ acquired/ underlying Exposure (refunded) (closed out) reference acquired/ instrument (reduced) (in cents) (R) (R)

Opening balance: 1 March 2013 3 904 579 354.00 13 934 029 13 934 029Movements for the year - - - -

Closing balance: 28 February 2014 3 904 579 - 13 934 029

The CFDs held by Huge Telecom are fully collateralised by cash, which has been posted as a 100% margin.

10. Directors’ interests in the share capital of the Company

As at 28 February 2014, the following directors held Shares in the issued share capital of the Company:

2014 - Number of Shares held Direct Indirect Total %

James Charles Herbst # 151 257 13 994 824 14 146 081 17.63Anton Daniel Potgieter 6 163 400 3 664 325 9 827 725 12.25David Deetlefs 1 767 348 - 1 767 348 2.20Vincent Mokhele Mokholo** - 400 000 400 000 0.50

8 082 005 18 059 149 26 141 154 32.58

2013 - Number of Shares held

James Charles Herbst # 151 257 10 186 570 10 337 827 11.58Anton Daniel Potgieter 6 163 400 3 664 325 9 827 725 11.01Michael Ronald Beamish 2 711 034 6 401 149 9 112 183 10.21Vincent Mokhele Mokholo ** 233 600 2 526 069 2 759 669 3.09David Deetlefs * 250 000 - 250 000 0.28Stephen Peter Tredoux 146 510 - 146 510 0.17

9 655 801 22 778 113 32 433 914 36.34

# the indirect shareholding is non-beneficial* acquired prior to being appointed as a director** the indirect shareholding is beneficial

DIRECTORS’ REPORT

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11. 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.

12. Special resolutions

The Company passed the following special resolutions during the current financial year:

Date of special resolution Nature of special resolution12 July 2013 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 scale of the non-executive directors’ remuneration for the financial year commencing 1 March 2013, in terms of section 66(9) of the Companies Act.

The granting of a general approval in terms of the section 45 of the Companies Act, to the Company and its subsidiary companies of the Company to enter into funding agreements, guarantee loans or other obligations, secure debts or obligations or 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 LR.

The adoption of a new MOI.

The new MOI took effect from 22 October 2013.

13. Dividends

No dividends were declared or paid to the shareholders during the year (2013: R Nil).

14. Pro-active Monitoring of financial statements

On 21 February 2013, the Company received a letter from the JSE (the 21 February 2013 Letter). In the 21 February 2013 Letter the JSE instructed the Company to forthwith restate (the Restatement Decision) its 2010 (incorporating 2009 as a comparative), 2011 and 2012 AFS (the Relevant AFS) in as far as this related to the accounting by the Company of the following items:

1. The accounting by the Company for an option granted by it to a trust of a director of Eyeballs to acquire shares in Eyeballs from the Company (the Eyeballs Option Matter). This was accounted for correctly in the consolidated AFS but the Company should have accounted for it as a cash settled, share based payment in its separate AFS;

2. The accounting by the Company for an investment in an associate company on the acquisition by the Company of a 25% shareholding in Eyeballs (the Eyeballs Investment Matter);

3. The accounting by the Company for an investment in a subsidiary company on the acquisition of an additional 52% shareholding in Eyeballs (the Eyeballs Step Acquisition);

4. The accounting by the Company for a claim by Kimber of an amount of money in cash (the Kimber Claim); and

5. The accounting by the Company for SSFs acquired by the Company and its subsidiary company, Huge Telecom (the SSFs);

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14. Pro-active Monitoring of financial statements (continued)

The Company objected to the Restatement Decision on the following grounds:

1. With regard to the Eyeballs Option Matter, the option was granted on 1 March 2009 and by 28 February 2010 the fair value of the option had declined to an amount that was immaterial;

2. With regard to the Eyeballs Investment Matter, by 28 February 2010 Eyeballs had become a subsidiary company of Huge and accordingly the Eyeballs Investment Matter would have no continuing effect on the future AFS of the Company or the Group for reporting periods after 28 February 2009;

3. With regard the Eyeballs Step Acquisition, the JSE’s concerns about the accounting for the step acquisition of Eyeballs in the 2010 AFS related solely to the disclosure contained in a note to those AFS and there was no effect on the profit or loss, statement of financial position and statement of cash flows;

4. With regard to the Kimber Claim, full disclosure of the Kimber Claim was timeously and properly made in the Relevant AFS. The Board was at all material times of the view that the Kimber Claim had no reasonable prospects of success (and that this was the appropriate reason why the liability was not raised in respect thereof) and that the accounting treatment and disclosure of the Kimber Claim was correct; and

5. With regard to the SSFs, all material facts and circumstances pertaining to the SSFs had been fully disclosed to users of the Relevant AFS and any restatement of the Relevant AFS would not materially alter a user’s understanding of the financial position and business of the Company. Shareholders are referred to notes 1.3, 1.5 and 16 to these AFS for respective explanations of the accounting policy and accounting treatment relating to the SSFs. The directors, in considering all the facts and circumstances (more fully described in notes 1.3 and 1.5) which were not limited to the legal form of the SSF contract, concluded that in substance they were de facto cash settled instruments and should be accounted for as such.

On 20 January 2014 the Company received a letter (the 20 January 2014 Letter) from the JSE advising that:

1. Even though the Company’s objections in respect of items 1, 2, 3 and 4 of the 21 February 2013 Letter (as referred to above) were dismissed by the JSE, no restatement was required in respect of these matters; and

2. The Company’s objection in respect of item 5 of the 21 February 2013 Letter was dismissed and the Company was instructed to immediately restate its 2010, 2011 and 2012 AFS in terms of section 8.65 of the LR (the Final Decision).

On 21 February 2014, the Company addressed a letter (the 21 February 2014 Letter) to the JSE in response to the 20 January 2014 Letter. In the 21 February 2014 Letter, the Company advised the JSE that:

1. The Restatement Decision relates to the accounting treatment and disclosure of the SSFs and in this regard the Company wished to draw to the attention of the JSE that, subsequent to the submission by the Company of its comprehensive reasons for the objection, certain events had occurred that the Company believed were relevant to the Final Decision and which had not been considered by the JSE in rendering the Final Decision. The relevant events (the Additional Facts) are summarised below.

2. On 4 December 2013 Nedgroup Securities, a nominee company of Nedbank, directed a letter (the 4 December 2013 Letter) to Watermark in relation to the SSFs stating that it would not be rolling or extending the SSFs (which it incorrectly referenced as amounting to 84 407 SSFs instead of 84 047 SSFs).

3. Watermark advised the Company and Huge Telecom of the content of the 4 December 2013 Letter.

4. In light of the stance adopted by Nedgroup Securities in the 4 December 2013 Letter, and given that Huge and Huge Telecom could not unilaterally extend the SSFs, Huge and Huge Telecom were left with only two potential courses of action, namely to:


DIRECTORS’ REPORT

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14. Pro-active Monitoring of financial statements (continued)

4.1 allow the SSFs to expire; or4.2 close out the SSFs.

5. On 13 December 2013 the boards of the Company and Huge Telecom resolved (the 13 December Resolutions) to close out the 80 455 SSFs held by Huge (the Huge SSFs) and the 3 592 SSFs held by Huge Telecom (the Huge Telecom SSFs) prior to their expiry dates of 19 December 2013.

6. Pursuant to the 13 December Resolutions, on 18 December 2013 Mr James Herbst, acting in his capacity as chief executive officer of the Company and Huge Telecom, duly instructed Watermark to close out the Huge SSFs and the Huge Telecom SSFs prior to their expiry on 19 December 2013.

7. Pursuant to the aforesaid instructions the Huge SSFs and the Huge Telecom SSFs were closed out on 18 December 2013 (the Close Out).

8. The Close Out of the SSFs resulted in the SSFs being cash settled and not physically settled. The accounting of the SSFs in the Relevant AFS as cash-settled transactions therefore reflects the reality of how the SSFs were ultimately de facto settled. The Company is therefore of the view that the restatement of the Relevant AFS as required by the JSE on the basis that the SSFs were physically settled would be predicated upon a purely theoretical scenario. The Company therefore believes that such a restatement would be redundant and that it would be confusing and misleading for shareholders of the Company and would be to their prejudice.

9. The Company has requested the JSE to reconsider the Final Decision on the basis that it was rendered without consideration of all relevant facts (and particularly the Additional Facts). The Company has submitted that, having regard to the aforegoing, the Company should not be required to restate the Relevant AFS.

10. The Board is of the view that (i) the Restatement Decision and the Final Decision is ultra vires the powers of the JSE, and (ii) the restatement of the Relevant AFS is not in the best interests of the Company and its shareholders. In the circumstances, if the JSE persists with the Restatement Decision and the Final Decision, the members of the Board will, in proper discharge of their fiduciary duties, have no option but to authorise the Company to lodge an appeal against the Final Decision with the FSB in order to ensure the fullest ventilation of the issues and to confirm whether or not the JSE has the applicable jurisdiction in respect of the Restatement Decision and the Final Decision and that all of the audit opinions and expert advice received by the Company in regard to the accounting and disclosure of the SSFs is incorrect as contended by the JSE, and (iii) the directors have a statutory obligation to present separate and consolidated AFS that they consider fairly present the financial position, results and cash flows, and are not misleading – which they have achieved by adopting the existing accounting treatment.

11. The Company has also requested that the JSE furnish the Company with full and comprehensive reasons for the Restatement Decision and the Final Decision for the purposes of its appeal submissions.

15. Litigation

Huge Telecom is currently party to the following litigation:

Dispute between 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; 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 for 1) payment of the amount of R30 million; 2) interest; 3) costs of the suit; 4) further or alternative relief.

In terms of a Court Order of the South Gauteng High Court handed down by Mokgoatlheng J on 20 August 2012, the matter was 1) referred to trial; 2) the notice of motion and founding affidavit were ordered to stand as a simple summons with 3) MTNSP required to deliver a declaration and 4) the costs of the application to be the costs in the cause of a trial action.

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15. Litigation (continued)

MTNSP delivered its declaration on 1 October 2012.

Huge Telecom delivered a notice in terms of Rule 23 and Rule 30 of the Uniform Rules of Court on 26 October 2012, and on 7 December 2012 MTNSP amended its declaration.

On 20 February 2013 Huge Telecom filed its Plea to MTNSP’s amended declaration. The amended declaration no longer includes a prayer for the winding up of Huge Telecom. Huge Telecom filed its Special Plea and Plea defending the action (the First Action), and on 18 April 2013 MTNSP filed a replication in response to Huge Telecom’s plea. The First Action has been set down for hearing on or about 25 August 2014.

On 15 February 2013 the Sheriff of the South Gauteng High Court served a combined summons against Huge Telecom in terms of which MTNSP prayed for judgment against Huge Telecom for payment of the sum of R56 020 357 plus interest and costs on the basis of a tacit agreement being concluded between Huge Telecom and MTNSP during September 2009, alternatively on the basis of unjustifiable enrichment at the expense of MTNSP.

On 4 March 2013, Huge Telecom filed a notice of intention to defend this action and on 18 April 2013, it filed its Special Plea and Plea defending this action (the Second Action).

On 23 July 2013, MTNSP delivered a replication in response to the Special Plea and Plea filed by Huge Telecom.

The Second Action had not been set down for hearing. On 27 March 2014, the attorneys for MTNSP requested Huge Telecom to agree to the consolidation of the First Action and the Second Action. On 8 May 2014 Huge Telecom agreed to the consolidation of the First Action and the Second Action and both will be heard on or about 25 August 2014.

The Group has recognised the assets and the liabilities relating to the MTNSP dispute at levels appropriate to the Company's assessment of the likely outcome of the legal action 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, Kimber 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.

This claim was settled by an out of court settlement reached during August 2013, and all claims by Kimber have been waived in full, and final settlement of the matter has been achieved.

Arbitration

Dispute between Huge and Telemasters

During February 2013 Telemasters cancelled an agreement with Huge for the supply of MTN airtime and suspended the SIM cards held by the Company.

As at 28 February 2013 Telemasters alleges that Huge is indebted to it in the amount of R4.176m. Huge has claims against Telemasters in the amount of R4.392m plus interest, in respect of amounts overcharged by Telemasters. The matter will be subject to arbitration by the Arbitration Foundation of Southern Africa. The assets and liabilities relating to this dispute have been recognised at levels appropriate to the Company’s assessment of the outcome of the arbitration hearing. A date has not yet been set for the arbitration hearing.


DIRECTORS’ REPORT

50

15. Litigation (continued)

Litigation involving directors of the Company (not directly related to the Company)

On 16 October 2008, Huge acquired SSFs that later became the subject of a dispute with the JSE wherein the JSE ruled that the transactions constituted a repurchase by the Company of its own shares in terms of the Companies Act 61 of 1973 (the old Companies Act) and were also deemed to be transactions with related parties (the JSE Findings).

Subsequent to the JSE Findings, the JSE imposed a fine of R5 million on each of Herbst and Potgieter (the Fines). Herbst and Potgieter lodged appeals with the Appeal Board of the FSB against the JSE Findings and the Fines.

On 9 July 2012, in accordance with an order of the Appeal Board of the 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 old Companies Act and section 5.69 of the LR of the JSE had been set aside, and instead replaced this with a finding that the Company, Herbst and Potgieter had breached section 5.69 read in conjunction with section 5.82 of the LR (the FSB Finding) and imposing a fine of R3 million on each of Herbst and Potgieter (the FSB Fine). Herbst and Potgieter launched review proceedings in the North Gauteng High Court requesting the North Gauteng High Court (the Court) to set aside the FSB Finding and the FSB Fine.

On 29 October 2013, the Court set aside the FSB Finding and the FSB Fine and awarded costs to Herbst and Potgieter, to be paid by the JSE.

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 may result in a possible loss has been disclosed.

16. Events after the reporting period

On 29 May 2014 Huge Telecom declared a dividend in specie of 9 060 000 Shares held by it. This dividend declaration resulted in the number of shares held by Huge Telecom reducing from 18 706 926 to 9 646 926, this being 9.75% of the number of shares in issue after the declaration of the dividend in specie. The Shares subject to this dividend declaration have been returned by Huge to its authorised Share capital. Other than this matter, the Board is 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 AFS.

INDEPENDENT AUDITORS’ REPORT

To the shareholders of Huge Group LimitedReport on the Financial StatementsWe have audited the consolidated and separate annual financial statements of Huge Group Limited, as set out on pages 52 to 116, which comprise the statement of financial position as at 28 February 2014, statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and the notes and a summary of significant accounting policies and other explanatory notes.

Directors’ responsibility for the Consolidated and Separate Annual Financial StatementsThe Company’s directors are responsible for the preparation and fair presentation of these consolidated and separate annual 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 annual financial statements that are free from material misstatements, whether due to fraud or error.

Auditors’ responsibilityOur responsibility is to express an opinion on these consolidated and separate annual 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 as to whether the consolidated and separate annual financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated and separate annual financial statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the consolidated and separate annual 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 consolidated and separate annual 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 consolidated and separate annual financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion, the consolidated and separate annual financial statements present fairly, in all material respects, the financial position of Huge Group Limited as at 28 February 2014, 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 ActAs part of our audit of the consolidated and separate annual financial statements for the year ended 28 February 2014, we have read the Directors’ Report, the Audit Committee’s Report and the Group Company Secretary's Report for the purpose of identifying whether there are material inconsistencies between these reports and the audited consolidated and separate annual 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 annual financial statements. However, we have not audited these reports and accordingly do not express an opinion on these reports.

Report on Other Legal and Regulatory RequirementsIn accordance with our responsibilities in terms of sections 44(2) and 44(3) of the Auditing Profession Act, we report that we have reason to believe that there has been a material breach of fiduciary duty by one or more persons responsible for the management of Huge Telecom Proprietary Limited and Huge Group Limited which constitutes a reportable irregularity in terms of the Auditing Profession Act, and have reported this matter to the Independent Regulatory Board of Auditors. Particulars of the reportable irregularity are that Huge Telecom Proprietary Limited acquired shares in Huge Group Limited which, together with shares already held by it, resulted in Huge Telecom Proprietary Limited holding 18.6% of the issued shares in Huge Group Limited. We believe this to be a contravention of section 48 of the Companies Act of South Africa. As at the date of this report, we are satisfied that the contravention of section 48 has been remedied.

BDO South Africa Incorporated Per: Gawie Marais 22 Welllington RoadPartner ParktownRegistered Auditor 2193

25 July 2014 51Huge Group Limited Integrated Report 2014

STATEMENT OF FINANCIAL POSITIONas at 28 February 2014

52

Group CompanyFigures in Rand Note 2014 2013 2014 2013

Assets Non-Current AssetsProperty, plant and equipment 4 34 450 565 32 489 579 - -Goodwill 5 215 153 482 215 153 482 - -Intangible assets 6 2 808 534 3 243 525 - -Investments in subsidiary companies 7 - - 113 343 479 184 096 863Investment in joint venture company 8 702 463 629 293 - -Other financial assets 9 - 298 630 - 298 630Deferred tax 10 11 302 734 15 755 915 3 813 803 2 881 489

264 417 778 267 570 424 117 157 282 187 276 982

Current AssetsOther financial assets 9 3 400 079 8 120 747 - 5 390 485Inventories 11 - 5 742 244 - 4 020 004Loans to group companies 12 - - 45 891 927 20 288 935Current tax receivable 164 404 164 404 - -Trade and other receivables 13 69 220 149 70 823 341 4 353 088 117 631Deferred DIBs 14 3 766 635 - - -Cash and cash equivalents 15 4 173 099 9 963 189 904 1 164

80 724 366 94 813 925 50 245 919 29 818 219

Total Assets 345 142 144 362 384 349 167 403 201 217 095 201

Equity and Liabilities EquityShare capital 17 208 410 530 213 361 060 224 722 561 223 578 831Reserves 18 (482 456) (1 074 561) (482 456) (1 074 561)Accumulated profit (loss) 11 888 288 627 757 (104 990 993) (16 699 605)

219 816 362 212 914 256 119 249 112 205 804 665Non-controlling interest 19 (3 659 900) (3 139 922) - -

216 156 462 209 774 334 119 249 112 205 804 665

Liabilities Non-Current LiabilitiesFinance lease obligations 20 458 920 308 582 - -Deferred tax 10 7 771 325 7 595 942 - -

8 230 245 7 904 524 - -

Current LiabilitiesLoans from group companies 12 - - 41 432 366 5 514 945Loans from shareholders 21 1 345 961 219 384 1 345 961 219 384Other financial liabilities 22 1 167 946 1 095 005 - -Finance lease obligations 20 359 732 213 163 - -Trade and other payables 23 107 881 153 128 350 549 5 375 762 5 556 207Bank overdraft 15 10 000 645 14 827 390 - -

120 755 437 144 705 491 48 154 089 11 290 536

Total Liabilities 128 985 682 152 610 015 48 154 089 11 290 536

Total Equity and Liabilities 345 142 144 362 384 349 167 403 201 217 095 201

53Huge Group Limited Annual Report 2014

STATEMENT OF COMPREHENSIVE INCOMEfor the year ended 28 February 2014


Revenue 25 203 577 908 266 321 277 - 34 157 815Cost of sales 26 (109 338 124) (187 271 686) - (29 894 501)

Gross profit 94 239 784 79 049 591 - 4 263 314Other income 27 1 541 967 1 181 983 563 345 -Administration expenses (24 662 138) (22 420 592) (87 936 055) (23 410 128)Employee costs (51 024 865) (47 506 399) - -Selling and distribution expenses (1 890 801) (3 139 968) - -Impairment of non-current assets (239 747) (8 422 129) - -

Operating profit (loss) 28 17 964 200 (1 257 514) (87 372 710) (19 146 814)Investment revenue 29 1 021 159 1 311 007 378 365 478 591Net change in fair value of financial instruments 30 (804 304) (6 041 277) (1 335 752) (3 987 479)Income from joint venture 8 73 170 67 063 - -Finance costs 31 (2 293 002) (3 705 033) (301 499) (1 000 974)

Profit (loss) before taxation 15 961 223 (9 625 754) (88 631 596) (23 656 676)Taxation 32 (4 628 565) (2 263 838) 932 313 443 924

Profit (loss) for the year 11 332 658 (11 889 592) (87 699 283) (23 212 752)

Total comprehensive income (loss) attributable to:Owners of the parent 11 852 636 (9 871 166) (87 699 283) (23 212 752)Non-controlling interest (519 978) (2 018 426) - -

11 332 658 (11 889 592) (87 699 283) (23 212 752)

Earnings per share Per share informationEarnings (loss) per share (c) 33 13.54 (11.01) - -Diluted earnings (loss) per share (c) 33 13.54 (11.01) - -

54

STATEMENT OF CHANGES IN EQUITY for the year ended 28 February 2014

Share Share Total share Reserves for Accumulated Total Non- Total equity capital premium capital own shares/ profit (loss) attributable to controlling share equity holders Interest repurchase of the Group /Figures in Rand reserve Company

GroupBalance at 1 March 2012 9 024 214 395 558 214 404 582 (1 074 561) 10 498 923 223 828 944 (1 121 496) 222 707 448

Loss for the year - - - - (9 871 166) (9 871 166) (2 018 426) (11 889 592)

Total comprehensive loss for the year - - - - (9 871 166) (9 871 166) (2 018 426) (11 889 592)

Cancelled shares (93) (974 429) (974 522) - - (974 522) - (974 522)Treasury shares (6) (68 994) (69 000) - - (69 000) - (69 000)

Total contributions by and distributions to owners of the Company recognised directly in equity (99) (1 043 423) (1 043 522) - - (1 043 522) - (1 043 522)

Balance at 1 March 2013 8 925 213 352 135 213 361 060 (1 074 561) 627 757 212 914 256 (3 139 922) 209 774 334

Profit for the year - - - - 11 852 636 11 852 636 (519 978) 11 332 658

Total comprehensive income for the year - - - - 11 852 636 11 852 636 (519 578) 11 332 658

Treasury shares (900) (4 949 630) (4 950 530) - - (4 950 530) - (4 950 530)Lapsing of share options - - - 592 105 (592 105) - - -

Total contributions by and distributions to owners of the Company recognised directly in equity (900) (4 949 630) (4 950 530) 592 105 (592 105) (4 950 530) - (4 950 530)

Balance at 28 February 2014 8 025 208 402 505 208 410 530 (482 456) 11 888 288 219 816 362 (3 659 900) 216 156 462

Note 17 17 17 18 19

CompanyBalance at 1 March 2012 9 989 224 543 364 224 553 353 (1 074 561) 6 513 147 229 991 939 - 229 991 939

Loss for the year - - - - (23 212 752) (23 212 752) - (23 212 752)

Total comprehensive loss for the year - - - - (23 212 752) (23 212 752) - (23 212 752)

Cancelled shares (93) (974 429) (974 522) - - (974 522) - (974 522)

Total contributions by and distributions to owners of the Company recognised directly in equity (93) (974 429) (974 522) - - (974 522) - (974 522)

Balance at 1 March 2013 9 896 223 568 935 223 578 831 (1 074 561) (16 699 605) 205 804 665 - 205 804 665

Loss for the year - - - - (87 699 283) (87 699 283) - (87 699 283)


Transfer of shares to Huge Telecom - 1 143 730 1 143 730 - - 1 143 730 - 1 143 730Lapsing of share options - - - 592 105 (592 105) - - -

Total contributions by and distributions to owners of the Company recognised directly in equity - 1 143 730 1 143 730 592 105 (592 105) 1 143 730 - 1 143 730

Balance at 28 February 2014 9 896 224 712 665 224 722 561 (482 456) (104 990 993) 119 249 112 - 119 249 112

Note 17 17 17 18

55

Share Share Total share Reserves for Accumulated Total Non- Total equity capital premium capital own shares/ profit (loss) attributable to controlling share equity holders Interest repurchase of the Group /Figures in Rand reserve Company

GroupBalance at 1 March 2012 9 024 214 395 558 214 404 582 (1 074 561) 10 498 923 223 828 944 (1 121 496) 222 707 448

Loss for the year - - - - (9 871 166) (9 871 166) (2 018 426) (11 889 592)

Total comprehensive loss for the year - - - - (9 871 166) (9 871 166) (2 018 426) (11 889 592)

Cancelled shares (93) (974 429) (974 522) - - (974 522) - (974 522)Treasury shares (6) (68 994) (69 000) - - (69 000) - (69 000)

Total contributions by and distributions to owners of the Company recognised directly in equity (99) (1 043 423) (1 043 522) - - (1 043 522) - (1 043 522)

Balance at 1 March 2013 8 925 213 352 135 213 361 060 (1 074 561) 627 757 212 914 256 (3 139 922) 209 774 334

Profit for the year - - - - 11 852 636 11 852 636 (519 978) 11 332 658

Total comprehensive income for the year - - - - 11 852 636 11 852 636 (519 578) 11 332 658

Treasury shares (900) (4 949 630) (4 950 530) - - (4 950 530) - (4 950 530)Lapsing of share options - - - 592 105 (592 105) - - -

Total contributions by and distributions to owners of the Company recognised directly in equity (900) (4 949 630) (4 950 530) 592 105 (592 105) (4 950 530) - (4 950 530)

Balance at 28 February 2014 8 025 208 402 505 208 410 530 (482 456) 11 888 288 219 816 362 (3 659 900) 216 156 462

Note 17 17 17 18 19

CompanyBalance at 1 March 2012 9 989 224 543 364 224 553 353 (1 074 561) 6 513 147 229 991 939 - 229 991 939

Loss for the year - - - - (23 212 752) (23 212 752) - (23 212 752)


Cancelled shares (93) (974 429) (974 522) - - (974 522) - (974 522)

Total contributions by and distributions to owners of the Company recognised directly in equity (93) (974 429) (974 522) - - (974 522) - (974 522)

Balance at 1 March 2013 9 896 223 568 935 223 578 831 (1 074 561) (16 699 605) 205 804 665 - 205 804 665

Loss for the year - - - - (87 699 283) (87 699 283) - (87 699 283)


Transfer of shares to Huge Telecom - 1 143 730 1 143 730 - - 1 143 730 - 1 143 730Lapsing of share options - - - 592 105 (592 105) - - -

Total contributions by and distributions to owners of the Company recognised directly in equity - 1 143 730 1 143 730 592 105 (592 105) 1 143 730 - 1 143 730

Balance at 28 February 2014 9 896 224 712 665 224 722 561 (482 456) (104 990 993) 119 249 112 - 119 249 112

Note 17 17 17 18


56

STATEMENT OF CASH FLOWSfor the year ended 28 February 2014


Cash flows from operating activities

Cash generated from operations 34 12 855 062 12 708 727 1 588 031 (1 495 594)Interest income 29 1 021 159 1 055 011 378 365 472 595Dividends received - 255 996 - 5 996Finance costs 31 (2 293 002) (3 651 244) (301 499) (1 000 974)Tax refunded 35 - 279 - -

Net cash from operating activities 11 583 219 10 368 769 1 664 897 (2 017 977)

Cash flows from investing activities

Purchase of property, plant and equipment 4 (7 508 421) (1 393 627) - -Proceeds from disposal of property, plant and equipment 4 119 510 - - -Purchase of other intangible assets 6 (1 881 372) (1 619 015) - -Funds received from group companies - 199 959 - 33 312 609Funds paid to group companies - - (4 113 213) (30 916 405)Proceeds from sale of financial assets 177 824 - 298 630 -

Net cash from investing activities (9 092 459) (2 812 683) (3 814 583) 2 396 204

Cash flows from financing activities

Proceeds on share issue 17 - - 1 143 730 -Repurchase of shares 17 (4 950 530) (1 043 522) - (974 522)Repayment of other financial liabilities (9 249) (1 795 259) (120 881) -Proceeds from other financial liabilities 82 190 - - 35 271Shareholders’ loans - repayments - (2 440 720) - -Shareholders’ loans - advances 1 126 577 - 1 126 577 511 389Finance lease payments (354 569) (271 614) - -Finance lease receipts 651 476 - - -

Net cash from financing activities (3 454 105) (5 551 115) 2 149 426 (427 862)

Total cash movement for the year (963 345) 2 004 971 (260) (49 635)Cash at the beginning of the year (4 864 201) (6 869 172) 1 164 50 799

Total cash at end of the year 15 (5 827 546) (4 864 201) 904 1 164

57

ACCOUNTING POLICIES

1. Presentation of Consolidated and Separate Annual Financial Statements

The AFS have been prepared in accordance with IFRS, its interpretations as adopted by the International Accounting Standards Board, the Financial Reporting Guides (SAICA-APC) and in the manner required by the Companies Act. The AFS have been prepared on the historical cost basis, except for certain financial instruments carried at fair value, and incorporate the principal accounting policies set out below. The AFS are presented in the functional currency of the Company.

These accounting policies are consistent with the previous period, except for the changes set out in note 2 to the AFS.

Basis of preparation

The AFS have been prepared on the going concern basis which assumes that the Company and its subsidiary companies will continue in operational existence for the foreseeable future.

1.1 Segmental 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. Each operating segment’s results are reviewed regularly by the Chief Executive Officer (who is 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.

The basis of segmental reporting has been set out in note 3.

1.2 Consolidation

Basis of consolidation

The Company has control of an investee when it has power over the investee; it is exposed to or has rights to variable returns from involvement with the investee; and it has the ability to use its power over the investee to affect the amount of the investor’s returns.

These AFS incorporate the financial statements of the Company, all of its subsidiary companies and a joint venture company. The AFS 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 eliminated in full.

Subsidiary companies

Subsidiary companies are entities controlled by the Company. The annual financial statements of the subsidiary companies are included in the AFS from the date control is acquired 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 Annual financial statements of the Company.

Investments held with less than 50% of the voting power are considered subsidiary companies provided that the definition of control in IFRS 10 has been satisfied.


58

ACCOUNTING POLICIES

1.2 Consolidation (continued)

Joint arrangements

Joint arrangements are a separate legal entity. The joint partners do not have direct responsibilities for the assets and liabilities and therefore the arrangement is classified as a joint venture. The Group’s interest in its joint venture company is accounted for using the equity method of accounting, whereby the interest in the jointly controlled arrangement is initially recorded at the cost of the investment, including transaction costs, and is adjusted thereafter for post-acquisition changes in the Group’s share of net assets of the joint venture company. The profit and loss reflects the Group’s share of the results of operations of the joint venture.

Details of consolidations

A listing of the Company’s principal subsidiary companies and joint venture Company is set out in notes 7 and 8 of these AFS.

Goodwill

Goodwill is determined as the consideration paid, plus the fair value of any shareholding held prior to obtaining control, plus non-controlling interest and less the fair value of the identifiable assets and liabilities of the acquiree. When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.

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.

1.3 Significant judgements and sources of estimation uncertainty

In preparing the AFS, management makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future actual experience may differ from these estimates and assumptions. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Significant judgements

Power to exercise significant influence

Investments held with less than 50% of the voting power are considered subsidiary companies provided that the definition of control in IFRS 10 has been satisfied. The Group holds less than 50% of the voting power in Ambient and Le Gacy, each of the investments is considered a subsidiary company as the definition of control in IFRS 10 has been satisfied. More information is disclosed in note 1.2 and note 7 of the AFS.

Single stock futures and contracts for difference

The conclusion at which the Board arrives at in note 1.5 requires the significant application of judgement and the accounting treatment that has been chosen is accompanied by detailed disclosures with respect to the circumstances around the SSFs and how the accounting treatment adopted has been determined. While disclosure itself does not achieve IFRS compliance, under the circumstances it is a requirement on the basis of IAS 1 Presentation of Financial Statements which states:

“122 An entity shall disclose, in the summary of significant accounting policies or other notes, the judgements, apart from those involving estimations (see paragraph 125), that management has made in the process of applying the entity’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements.

123 In the process of applying the entity’s accounting policies, management makes various judgements, apart from those involving estimations, that can significantly affect the amounts it recognises in the financial statements.”

1.3 Significant judgements and sources of estimation uncertainty (continued)The accounting treatment adopted was therefore arrived at by concluding that it was directly in compliance with IAS 32 on the basis of the requirements of substance over legal form as stipulated in that standard. To the extent that the Board is incorrect in arriving at this conclusion there is sufficient evidence to suggest that IAS 32 lacks sufficient guidance with respect to an appropriate accounting policy for the specific circumstances that were faced. In any event the end results would be the same in that the accounting policy adopted for the SSFs was/is consistent with that which is applied to the cash settled equivalent, CFDs.From the perspective of IAS 8, the following extracts are applicable:10 In the absence of an IFRS that specifically applies to a transaction, other event or condition,

management shall use its judgement in developing and applying an accounting policy that results in information that is:

(a) relevant to the economic decision-making needs of users; and(b) reliable, in that the financial statements:

(i) represent faithfully the financial position, financial performance and cash flows of the entity(ii) reflect the economic substance of transactions, other events and conditions, and not merely

the legal form;(iii) are neutral, i.e. free from bias;(iv) are prudent; and(v) are complete in all material respects.

11 In making the judgement described in paragraph 10, management shall refer to, and consider the applicability of, the following sources in descending order:

(a) the requirements in IFRSs dealing with similar and related issues; and(b) the definitions, recognition criteria and measurement concepts for assets, liabilities, income and

expenses in the Framework.”The Board has not taken the view that it is the IAS 8 basis as outlined above that is applicable because there is sufficient basis within IAS 32 itself to arrive at the same conclusion on the basis of the extracts provided above referring to the substance of the contracts.The Board does however accept that in most instances the legal form and substance of transactions are congruent; IAS 32 itself reminds the reader that this is not always the case and it is the responsibility of those applying IFRS to consider not only the form but also the substance.Estimates and assumptions Trade receivables and loans and receivablesThe Group assesses its trade receivables and loans and receivables for impairment at the end of each reporting period. In determining whether an impairment loss should be recorded in profit or loss, the Group makes judgements as to whether there is observable data indicating a measurable decrease in the estimated future cash flows from a financial asset.TaxationJudgement 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 during the ordinary course of business. The Group 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 provisions in the period in which such determination is made.The Group recognises the net future tax benefit related to deferred income tax assets to the extent that it is probable that the deductible temporary differences will reverse in the foreseeable future. Assessing the recoverability of deferred income tax assets requires the Group to make significant estimates related to expectations of future taxable income. 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 Group to realise the net deferred tax assets recorded at the end of the reporting period may be impacted.

59Huge Group Limited Integrated Report 2014

60

ACCOUNTING POLICIES

1.3 Significant judgements and sources of estimation uncertainty (continued)

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 CGUs 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 CGUs 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 the Goodwill is required at year end. Refer to note 5.

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 limitations 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 Group. 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.

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 year end, from the disposal of the asset in an arm’s length transaction between a market participant in its principal market after deducting the costs of disposal. Value in use is based on key assumptions on which management has based its determination, which include projected revenues, gross margins, capital expenditure, expected customer bases and market share.

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, the 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 year end, from the disposal of the asset in an arm’s length transaction with a market participant in its principal market, after deducting the costs of disposal. Value in use is based on key assumptions on which management has based its determination, which include projected revenues, gross margins, capital expenditure, expected customer bases and market share.

Determination of the liabilities and other receivables subject to dispute

The trade receivables and trade payables relating to the dispute between MTNSP and Huge Telecom and Huge Mobile are reflected separately in these AFS in notes 13 and 23 respectively. Management has estimated the amount that they are confident will be received or paid. The carrying amounts of these assets and liabilities may differ materially within the next financial year depending on the outcome of the dispute. Refer to note 41 for additional information.

1.4 Property, plant and equipment

The cost of an item of property, plant and equipment is recognised as an asset 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. Property, plant and equipment is initially measured at cost.

Costs include costs incurred initially to acquire or construct an item of property, plant and equipment and costs incurred subsequently to add to or replace part of it. If a replaced part is recognised in the carrying amount of an item of property, plant and equipment, the carrying amount of the replaced part is derecognised.

Items of property, plant and equipment are subsequently carried at cost less accumulated depreciation and any accumulated impairment. Items of property, plant and equipment are depreciated on the straight line basis over each asset’s estimated useful life to their estimated residual value. When parts of items of property, plant or equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

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.

There are no decommissioning obligations in respect of leasehold improvements as the Group will hand over leased premises including any leasehold improvements existing at the time of termination of the lease. All leasehold improvements are subject to approval by the lessor at the time of concluding the lease.

The useful lives of items of property, plant and equipment have been assessed as follows:

Item Average useful lifeLeasehold improvements Period of leasePlant and machinery 10 yearsFurniture and fixtures 6 yearsMotor vehicles 4 yearsOffice equipment 3 yearsIT equipment 3 yearsIT equipment - server equipment 5 yearsRouter 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 for as a change in accounting estimate.

The depreciation charge for each period is recognised in profit or loss unless it is included in the carrying amount of another asset.

The gain or loss arising from the derecognition of an item of property, plant and equipment is included in profit or loss when the item is derecognised. The gain or loss arising from the derecognition 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.


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1.5 Financial instruments

Classification

The Group classifies financial assets and financial liabilities into the following categories:

Description of asset/liability ClassificationInvestments Fair value through profit and lossTrade and other receivables Loans and receivablesLoans receivable Loans and receivablesCash and cash equivalents Loans and receivablesTrade and other payables Other liabilities at amortised costDerivatives Fair value through profit and lossOther financial liabilities Other liabilities at amortised costLoans payable Other liabilities at amortised cost

Classification depends on the purpose for which the financial instruments were obtained or incurred and takes place at initial recognition.

Initial recognition and measurement

Financial instruments are recognised initially when the Group becomes a party to the contractual provisions of the financial instruments.

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.

Financial instruments are measured initially at fair value.

For financial instruments which are not at fair value through profit or loss, transaction costs are included in the initial measurement of the instrument.

Derecognition

Derecognition of financial assets occurs when the Group no longer controls the contractual rights relating to the financial instrument in question, which is normally the case when the financial instrument is sold, or all the cash flows attributable to the financial 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.

Fair value determination

The best evidence of fair value on initial recognition is an observable price in an active market, 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 financial instruments that are substantially the same, discounted cash flow analysis and option pricing models refined to reflect the issuer’s specific circumstances.

1.5 Financial instruments (continued)

Trade and other receivables and loans receivable

Trade receivables and loans receivable are measured at initial recognition at fair value, and are measured subsequently at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss when there is objective evidence that the asset is impaired. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable may be impaired. The allowance recognised is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.

The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in profit or loss within operating expenses. When a trade receivable is uncollectable, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against operating expenses in profit or loss.

Trade and other receivables are classified as loans and receivables.

Deferred DIBs

Deferred DIBs are payments made in advance relating to revenue contracts extending into future reporting periods. They are amortised over the duration of the contract. These are classified as current assets.

Trade and other 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.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are convertible readily into a known amount of cash and are subject to an insignificant risk of changes in value. These are recorded initially at fair value and subsequently measured at amortised cost.

Derivative financial instruments

Derivative financial instruments (which are not designated as hedging instruments) consisting of SSFs and CFDs, are measured initially at fair value on the contract date, and are re-measured to fair value at subsequent reporting dates.

Changes in the fair value of derivative financial instruments are recognised in profit or loss as they arise. Derivatives are classified as either financial assets or liabilities at fair value through profit or loss.

Offsetting

Financial assets and financial liabilities are set-off against each other and the net amount presented in the statement of financial position 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.

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.


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Single Stock Futures and Contracts for Difference

Background to the accounting treatment and disclosure of the SSFs

On 2 July 2007 the shareholders of the Company resolved that “the general authority granted to the company, or a subsidiary of the company to acquire ordinary shares in the issued share capital of the company from time to time, in terms of the Companies Act, 1973 (Act No. 61 of 1973), as amended (“Act”), and in terms of the LR from time to time, being that ...be and is hereby approved… ”. The special resolution was registered by the Registrar of Companies and Close Corporations on 5 July 2007. The shareholders of the Company passed an identical resolution on 22 September 2008. The 22 September 2008 resolution was registered by the Registrar of Companies and Close Corporations on 20 October 2008.

The Company was party to SSFs in terms of which the underlying shares were its (Huge Group Limited) own ordinary shares. The SSFs were listed and traded on the JSE. The contractual terms of the SSFs were such that on expiry the purchaser was required to pay the agreed forward price for the underlying shares and the seller was required to deliver the underlying shares.

In the particular circumstances facing the Company, the transactions giving rise to the SSFs were the subject of an investigation by the JSE in years past as previously reported. The investigation of the JSE arrived at the following conclusion (extract from JSE correspondence dated 28 October 2008):

“2. The JSE has considered all the facts and information at its disposal and has decided that the Company’s purchase of the SSFs on the Companies [sic] securities may constitute a specific repurchase from a related party, as defined in section 5.69 of the JSE’s LR. The facts and information at our disposal further indicate that the Company may have failed to comply with the peremptory provisions of section 5.69 in concluding the SSF transaction. ”

The Company initially objected to the JSE’s decisions (the Decisions). After protracted correspondence the JSE, in its letter to the Company dated 4 March 2009, dismissed the objections of the Company.

On 9 March 2009, the Company, in a letter to the JSE, (and although not agreeing with the interpretation by the JSE of its LR), accepted the Decisions.

Huge published SENS announcements on 27 November 2009, 9 March 2010 and 3 May 2010 advising that a circular would be issued to obtain the necessary shareholder approval for the acquisition of the SSFs. However, neither the circular nor shareholders’ approval was obtained at the time of signature of the audit reports for 28 February 2010, 28 February 2011, 29 February 2012 and 28 February 2013. The circular remains unissued and shareholders’ approval remains outstanding because the JSE declined to approve the circular approved by the Board and presented to the JSE.

The Company has at all times disclosed all the material facts and circumstances pertaining to the SSFs. The Directors’ Reports in each of the 2009 AFS, 2010 AFS, 2011 AFS, 2012 AFS and 2013 AFS devote considerable time to a full and transparent discussion of the SSFs.

Subsequent to the Decisions, the JSE imposed a fine of R5 million (the JSE Fines) on two of the Company’s directors (Herbst and Potgieter).

Notwithstanding the official acceptance of the Decisions by the Company, Herbst and Potgieter lodged appeals with the Appeal Board of the FSB against the Decisions and the JSE Fines. Whilst the Company itself was not a party to the appeal process before the FSB, certain of its findings remain pertinent to an understanding of the transaction and/or the circumstances surrounding it.

On 9 July 2012, in accordance with an order of the Appeal Board of the 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 61 of 1973 (the Old Companies Act) and section 5.69 of the LR 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 LR (the FSB Finding) and imposing a fine of R3 million on each of Herbst and Potgieter (the FSB Fine).


In summary, although the Appeal Board of the FSB upheld the appeal of Herbst and Potgieter (and awarded costs in their favour and against the JSE), it concluded that the Company, Herbst and Potgieter had breached the LR and that a special resolution should have been obtained.

On 31 August 2012, Herbst and Potgieter filed a notice of motion in the North Gauteng High Court requesting the North Gauteng High Court (the Court) to review and set aside the FSB Finding and the FSB Fine.


On 18 December 2013 the Huge SSFs and the Huge Telecom SSFs were closed out and not rolled over as they had previously been by mutual agreement between Huge and Nedbank (the Close Out). The Close Out has resulted in the Huge SSFs and Huge Telecom SSFs being finally cash settled as opposed to being physically settled. The accounting of the SSFs in these AFS and the Relevant AFS as cash-settled transactions therefore reflects the reality of how the SSFs were ultimately de facto settled. In substance then, the Huge SSFs and the Huge Telecom SSFs have always been cash settled.

The accounting treatment and disclosure of the SSFs

Taking into consideration the decisions by the FSB and JSE above (noting that the Company formally accepted the JSE decision) and the information at note 14 in the Directors’ Report, it is the view of the Board that the Company could not proceed with the repurchase of the shares underlying the SSFs as otherwise would have been required by the contractual terms of the SSFs whilst lacking the necessary approvals from shareholders (which approvals were, subsequent to the purchase of the SSFs, subject to specific additional restrictions having been directed by the JSE) as this may have resulted in a further notification of a purported breach of the LR, and possibly other regulations, and could have resulted in liability for the Company and/or its directors which would not have been in the interests of shareholders.

Faced with these difficult circumstances, the Company in concert with Nedbank, from 2008 to the date of the Close Out, rolled forward (Rolled) by rolling (Rolling) the SSFs on no less than 15 occasions as they reached their maturity (or expiry) dates. Rolling the SSFs required the agreement of both parties to the SSFs and on a practical level essentially represented a new contract each time the SSFs were Rolled, with the parties re-establishing the positions as set out in the preceding contract. Up until 18 December 2013, it was the intention of the Board to continue to pursue this strategy into the foreseeable future whilst consideration was given as to how to resolve this matter more conclusively.

Therefore, the Board has been faced with a situation in terms of which the contractual terms of the SSFs would under typical circumstances require the SSFs to be recognised as an equity instrument. At the same time the Board and therefore the Company (in terms of the Decisions and the FSB Finding) lacked the necessary authorisation to take physical delivery of the ordinary shares underlying the SSFs.

In recognition of this constraint (together with its stated strategic intent regarding its involvement in such contracts) and in concert with the other parties to the SSFs, the Company (in substance) altered the nature of the agreement from one requiring physical settlement at the stated maturity (expiry) date of each of the SSFs, to one with indefinite roll overs and effective daily cash settlement until the SSFs were closed out; in other words more like CFDs than “vanilla” SSFs.

Therefore, even though financial instruments are typically accounted for based on their contractual terms, the circumstances and regulatory requirements surrounding the Huge SSFs and Huge Telecom SSFs demonstrated that their contractual terms could not be fulfilled in the traditional manner. Therefore, Huge was exposed to the fair value changes of the SSFs and would continue to be so exposed until such time as the SSFs were closed out through cash settlements paid to date (without the shares being repurchased) or the necessary approvals being obtained to repurchase the shares.


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In the Board’s opinion, the past accounting treatment reflects the substance of the arrangement.

The issues which the Board were required to consider and which have informed the accounting treatment of the SSFs encompass a number of separate and inter-related legal questions of a highly technical nature which, to the best of its knowledge, have not yet been fully considered by South African courts.

The SSFs were, by agreement between Huge and Nedbank (the counterparty to the SSFs), Rolled on each successive settlement date until the Close Out and the net effect of the Rolling on each occasion was for the settlement date of the SSFs, being the date on which the shares underlying the SSFs were to be paid and transferred by the respective counterparties, to be extended for a further 3 months. Up until November 2013, Huge had an understanding with the counterparty that the Rolling would continue on an indefinite basis, subject to payment of market related fees.

It is the opinion of the Board that whilst Huge lacked the authority in terms of the LR (as a result of the Decisions) to enter into the SSFs this did not affect the validity of the SSFs, and that the Company would require additional authority to acquire the underlying shares in the event that the SSFs were physically settled and not Rolled or closed out.

It is the opinion of the Board that in order for Huge to have taken delivery of the underlying shares under the Old Companies Act it would inter alia have needed to retain an independent expert and to obtain approval for the acquisition by way of a special resolution of shareholders.

The Board has also considered the letters of the JSE with respect to its proactive monitoring of financial statements and duly noted the conclusions of the Financial Reporting Investigations Panel (FRIP) with respect to the appropriate accounting for the SSFs. From the Board’s reading of the FRIP’s findings, it was apparent that the FRIP restricted itself to a consideration of the information at its disposal in terms of the annual reports of Huge as well as the standard terms of SSFs in arriving at its conclusions. It is the Board’s view that there were other circumstances beyond the scope of the review performed by the FRIP that needed to be considered.

All the background information above as well as the requirements of IFRS has informed the Board’s view as to the appropriate accounting treatment of the SSFs.

It is the Board’s view that if all the considerations above are ignored then, in terms of IAS 32 Financial Instruments: Presentation (IAS 32), a forward contract to purchase a fixed number of shares for a fixed amount of cash would result in the recognition of an equity instrument.

The illustrative examples to IAS 32 deal specifically with forward contracts negotiated between an issuer on the one hand and a counter-party on the other hand, in terms of which on the expiry date of the forward contract a fixed amount of an entity’s own equity instruments is exchanged for a fixed amount of cash, causing the forward contract to be accounted for as an equity instrument with a corresponding debit to equity.

“A financial liability is any liability that

(ii) is a derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity’s own equity instruments. For this purpose, rights, options or warrants to acquire a fixed number of the entity’s own equity instruments for a fixed amount of any currency are equity instruments if the entity offers the rights, options or warrants pro rata to all of its existing owners of the same class of its own non-derivative equity instruments...”

This would be consistent with the findings of the FRIP.


However, it is the Board’s view that it is appropriate to consider the effect, if any, of the other circumstances surrounding these transactions. The consideration of these other circumstances is necessary as there appears to be a conflict between the contractual terms of the SSFs and what the Company was able to do without creating new and potentially significant risks for itself, its directors, and potentially its shareholders.

IAS 32 as a standard has a focus on the contractual rights and obligations of the parties to a contract. It is assumed that the contract represents the substance of the transaction between the parties and therefore by applying its terms the subsequent accounting will also reflect the substance of the transaction. Notwithstanding this focus IAS 32 states:

“Liabilities and equity (see also paragraphs AG13-AG14J and AG25-AG29A)

15. The issuer of a financial instrument shall classify the instrument, or its component parts, on initial recognition as a financial liability, a financial asset or an equity instrument in accordance with the substance of the contractual arrangement and the definitions of a financial liability, a financial asset and an equity instrument.

18. The substance of a financial instrument, rather than its legal form, governs its classification in the entity’s statement of financial position. Substance and legal form are commonly consistent but not always. Some financial instruments take the legal form of equity but are liabilities in substance and others may combine features associated with equity instruments and features associated with financial liabilities.”

It is the Board’s opinion that it was therefore appropriate to consider the appropriate accounting treatment not only in terms of the legal form of the transactions but also their substance, which required an examination of any relevant circumstances. In doing so, however, the point of departure was to presume that the legal form was representative of the substance unless there were material indications to the contrary. The following circumstances informed the opinion of the Board:

1. In terms of the Decisions, the Company required a special resolution to acquire the shares underlying the SSFs; the Board intended for a circular to this effect to be issued for the consideration and approval of shareholders but this was never approved by the JSE.

2. The parties to the SSFs, up until the Close Out on the 18 December 2013, postponed/avoided settlement on 15 prior occasions by closing out and Rolling the SSFs.

3. The respective close outs and Rolling required the mutual consent of both parties and this behaviour up until November 2013 supports the view that there was a common purpose not to settle the SSFs in the manner that would otherwise be required if the contractual terms were applied as stated.

The substance of a forward contract is that the parties are committed to executing the transaction on the stated terms at the agreed date. The fact is that the SSFs were closed out and Rolled over 15 times from inception notwithstanding the fact that Huge had placed the full funds required to settle the transactions, which it held on margin with its stockbroker. Nedbank (the counterparty) had the physical shares required to settle the transactions and Huge had the full amount required to settle the transactions on margin account with its stockbroker. The decision to defer settlement on so many previous occasions is pertinent in understanding the substance of the SSFs.


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In considering the effect of the respective close outs and Rolling and the Close Out in terms of determining the true substance of the transaction it is important to have reference to how the SSFs are actually executed in the market place. At the maturity date, unless both parties otherwise agree, the SSFs are settled and physical delivery of the underlying shares takes place. The party with the short position (Nedbank) has to make delivery of the physical shares to the counterparty’s (Huge) stockbroker and expects settlement in cash. The stockbroker would have the full transaction amount on margin from Huge and therefore the SSFs would be settled as stipulated in the contract. In other words, Nedbank (or Huge) if it were acting in the manner anticipated in the contract, could have forced settlement on more than 15 occasions prior to November 2013 but did not do so. When it tried to unilaterally do so in November 2013, Huge closed out the SSFs without Rolling them.

The Board has put forward different motivations with respect to the purpose for which it entered into the SSFs and other related transactions. These motivations included:

1. To act as an economic hedge or de facto cash flow hedge against movements in the spot price of the Shares against a proposed share buy-back at some future date;

2. To reduce the potential risk associated with the repurchase by the Company of its own shares at some future date.

In addition, the Company has not differentiated between utilising CFDs and SSFs to achieve its objectives. Economically, in terms of the underlying exposure to share prices, these instruments are substitutes for one another. Furthermore, for shares that are actively traded with a deep market they are materially identical as physical delivery can be avoided by closing the position before the SSF expiry date.

While these similarities may not in themselves have been sufficient to alter the accounting that would otherwise have been required in terms of IFRS, i.e. classification of the SSFs as equity instruments, in considering the substance of the SSFs, together with the other matters discussed above, it is the Board’s view that it was supportive of a different conclusion than that which the generic treatment would dictate.

The information above (including the actions of the parties to the SSFs) undoubtedly shows that the SSFs were entered into by Huge with the same intent and purpose as the CFDs. The parties, Huge and Nedbank, ultimately modified (through their actions) the consequences of the standard SSF contract into something resembling a CFD (without being able to modify the explicit terms of the SSF itself, which was largely outside of the respective parties’ control as these were listed instruments with generic terms and conditions). Due to the relative lack of depth in the market for Huge shares, these otherwise tradable instruments (futures) may have resembled forward contracts (i.e. terms and conditions specified by the parties rather than generic).

As a consequence and under these particular circumstances, the accounting treatment for CFDs (at fair value through profit or loss) is therefore, on this basis, the appropriate accounting treatment for the SSFs on the basis that they were being handled by both parties, Huge and Nedbank, as if they were cash-settled transactions.

It is necessary to look outside the boundaries of an SSF contract to divine the substance of the SSFs due to the circumstances surrounding them. The substance of the SSFs, based primarily on the behaviour of the parties, shows, on a proper assessment, that the SSFs were transactions requiring cash-settlement and were not equity settled transactions.

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1.6 Tax

Current tax assets and liabilities

Current tax for current and prior periods is, to the extent unpaid, recognised as a liability. If the amount already paid in respect of current and prior periods exceeds the amount due for those periods, the excess is recognised as an asset.

Current tax liabilities (assets) for the current and prior periods are measured at the amount expected to be paid to (recovered from) the tax authorities, using the tax rates and tax laws that have been enacted or substantively enacted by the reporting date.

Deferred tax assets and liabilities

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, is not a business combination and affects neither accounting profit nor taxable income (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 which at the time of the transaction, is not a business combination and affects neither accounting profit nor taxable profit (tax loss).

A deferred tax asset is recognised for the carry forward of unused tax losses to the extent that it is probable that future taxable profit will be available against which the unused tax losses can be utilised.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted by the reporting date.

Deferred taxation for the period is recognised in profit or loss, other comprehensive income, except to the extent that it relates to a transaction that is recognised directly in equity. 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 that the deferred income taxes relate to the same taxable entity and the same taxation authority.

Deferred taxation is provided for on temporary differences between carrying values and the tax base of assets and liabilities.

1.7 Leases

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 is not a finance lease.

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.


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1.7 Leases (continued)

Operating leases – lessee

Operating lease payments are recognised as an expense on a straight-line basis over the lease term. The difference between the amounts recognised as an expense and the contractual payments are recognised as an operating lease liability. This liability is not discounted.

1.8 Inventories

Inventory relating to Huge, Huge Telecom and Huge Mobile consists of airtime purchased from service providers or from the MNOs.

Inventories are measured at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business and the estimated costs necessary to make the sale.

When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value is recognised as an expense in the period in which the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realisable value, is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.

1.9 Impairment of assets

The Group assesses at each reporting date whether there is any indication that an asset other than goodwill may be impaired. If any such indication exists, the Group estimates the recoverable amount of the asset.

Irrespective of whether there is any indication of impairment, the Group also tests goodwill acquired in a business combination for impairment annually.

If it is not possible to estimate the recoverable amount of the individual asset, the recoverable amount of the CGU to which the asset belongs, is determined.

The recoverable amount of an asset or a CGU is the higher of its fair value less costs to sell and its value in use.

If the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. That reduction is an impairment loss.

An impairment loss of assets carried at cost less any accumulated depreciation or amortisation is recognised immediately in profit or loss.

Goodwill acquired in a business combination is, from the acquisition date, allocated to each of the CGUs, or groups of CGUs, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units or groups of units.

Each unit or group of units to which the goodwill is so allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes, and is not larger than an operating segment as defined by paragraph 5 of IFRS 8 Operating Segments before aggregation.

An impairment loss is recognised for CGUs if the recoverable amount of the unit is less than the carrying amount of the unit. The impairment loss is allocated to reduce the carrying amount of the assets of the unit in the following order:

• first, to reduce the carrying amount of any goodwill allocated to the CGU and• then, to the other assets of the unit, pro rata on the basis of the carrying amount of each asset in

the unit.

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1.9 Impairment of assets (continued)

The Group assesses at each reporting date whether there is any indication that an impairment loss recognised in prior periods for assets other than goodwill may no longer exist or may have decreased. If any such indication exists, the recoverable amounts of those assets are estimated.

The increased carrying amount of an asset other than goodwill attributable to a reversal of an impairment loss does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior periods.

A reversal of an impairment loss on assets carried at cost less accumulated depreciation or amortisation other than goodwill is recognised immediately in profit or loss.

1.10 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 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.

Retained earnings include all current and prior period retained profits.

Treasury shares

Shares in Huge 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.

1.11 Employee benefits

Short-term employee benefits

The cost of short-term employee benefits, (those payable within 12 months after the service is rendered, such as paid vacation leave and sick leave, bonuses, and non-monetary benefits such as medical care), is recognised in the period in which the service is rendered and is not discounted.

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.

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.

1.12 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 trade discounts and volume rebates. Revenue is recognised when airtime is used and when the recovery of the consideration is probable 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 when the sale is recognised.

Interest is recognised, in profit or loss, using the effective interest rate method.


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1.12 Revenue (continued)

Dividends are recognised, in profit or loss, when the Group’s right to receive payment has been established.

1.13 Cost of sales

When inventories are sold, the carrying amount of those inventories 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.

1.14 Earnings and headline earnings per share

The Group presents EPS, diluted EPS and HEPS data in relation to its shares. EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Group by the weighted average number shares in issue 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 in issue adjusted for treasury shares held and for the effects of all potential shares to be issued in the future.

The calculation of HEPS is based on the net profit attributable to equity holders of the parent, after excluding all items of a non-trading nature, divided by the weighted average number of shares in issue during the year. The presentation of headline earnings is not an IFRS requirement, but is required by the JSE and Circular 2 of 2013 issued by the South African Institute of Chartered Accountants. An itemised reconciliation of the adjustments to net profit attributable to equity holders of the parent is provided in note 33.

1.15 Borrowing costs

Borrowing costs are recognised as an expense in the period in which they are incurred.

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NOTES TO THE CONSOLIDATED AND SEPARATE ANNUAL FINANCIAL STATEMENTSfor the year ended 28 February 2014

2. New Standards and Interpretations2.1 Standards and interpretations effective and adopted in the current year

In the current year, the Group has adopted the following standards and interpretations that are effective for the current financial year and that are relevant to its operations:

IFRS 10 Consolidated Financial StatementsThe standard replaces the consolidation sections of IAS 27 Consolidated and Separate Financial Statements and SIC 12 Consolidation – Special Purpose Entities. The standard sets out a new definition of control, which exists only when an entity is exposed to, or has rights to, variable returns from its involvement with the entity, and has the ability to affect those returns through power over the investee.

The effective date of the standard is for years beginning on or after 1 January 2013.

The Group has adopted the standard for the first time in the 2014 consolidated and separate annual financial statements.

The impact of the standard is not material.

IFRS 11 Joint ArrangementsThe standard replaces IAS 31 Interests in Joint Ventures and SIC 13 Jointly Controlled Entities – Non Monetary Contributions by Venturers.

The standard defines a joint arrangement as existing only when decisions about relevant activities require the unanimous consent of the parties sharing joint control in terms of a contractual arrangement. The standard identifies two types of joint arrangements as:

• Joint operations which exist when the entities sharing joint control have direct rights to the assets and obligations for the liabilities of the joint arrangements. In such cases the joint operators recognise their share of the assets and liabilities and profits and losses of the joint arrangements in their financial statements.

• Joint ventures which exist where the parties that have joint control of the arrangement have rights to the net assets (or net liabiilties) of the arrangement. The joint venturers recognise their interests in the joint venture as an investment and account using the equity method of accounting.




IFRS 12 Disclosure of Interests in Other EntitiesThe standard sets out disclosure requirements for investments in subsidiaries, associates, joint ventures and unconsolidated structured entities. The disclosures are aimed to provide information about the significance and exposure to risks of such interests. The most significant impact is the disclosure requirement for unconsolidated structured entities or off balance sheet vehicles.




IFRS 13 Fair Value MeasurementThis new standard setting out guidance on the measurement and disclosure of items measured at fair value or required to be disclosed at fair value in terms of other IFRS.



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2. New Standards and Interpretations (continued)The Group has adopted the standard for the first time in the 2014 consolidated and separate annual financial statements.


IAS 1 – Annual Improvements for 2009 – 2011 cycleThis standard provides clarification on the requirements for comparative information. Specifically, if a retrospective restatement is made, a retrospective change in accounting policy or a reclassification, the statement of financial position at the beginning of the previous period is only required if the impact on the beginning of the previous period is material. Related notes are not required, other than disclosure of specified information.

The effective date of the amendment is for years beginning on or after 1 January 2013.

The Group has adopted the amendment for the first time in the 2014 consolidated and separate annual financial statements.

The impact of the amendment is not material.

IAS 27 Separate Financial StatementsThis standard contains a consequential amendment as a result of IFRS 10. The amended Standard now only deals with separate financial statements.




IAS 34 – Annual Improvements for 2009 – 2011 cycleThis standard provides clarification on reporting of segment assets and segment liabilities in interim financial reports. Such reporting is only required when it is regularly reported to the chief operating decision maker, and when there has been a material change from the previous annual financial statements.




Consolidated Financial Statements, Joint Arrangements and Disclosures of Interests in Other Entities: Transition Guidance.This standard provides transitional guidance for the application of IFRS 10, IFRS 11 and IFRS 12. The amendment limits the requirement to provide adjusted comparative information to only the preceding comparative period.




2.2 Standards and interpretations not yet effectiveThe Group has chosen not to early adopt the following standards and interpretations, which have been published and are mandatory for the Group’s accounting periods beginning on or after 1 March 2014 or later periods:

IFRS 8 - Annual improvements for 2010 - 2012 cycleOperating Segments: Aggregation of operating segments:

The IASB was informed of concerns that the basis on which entities applied the aggregation criteria in IFRS 8 to operating segments were not clear.

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2. New Standards and Interpretations (continued)The IASB observed that paragraph 12 of IFRS 8 does not elaborate upon the meaning of ‘similar economic characteristics’ except to say that operating segments that share similar economic characteristics would be expected to exhibit a similar long term financial performance.

In addition, determining whether operating segments have ‘similar economic characteristics’ requires the use of judgement. Paragraph 22(a) of IFRS 8 currently contains a requirement to disclose the factors that were used to identify the entity’s reportable segments, including the basis of organisation, and suggests, as an example, disclosing whether operating segments have been aggregated. However, there is no explicit requirement in paragraph 22(a) of IFRS 8 to disclose the aggregation of operating segments.

Operating Segments: Reconciliation of the total of the reportable segments’ assets to the entity’s assets:

The IASB was informed of an inconsistency in the reconciliation disclosure requirements in IFRS 8 relating to an entity's reportable segments' assets.

The IASB observed that similarly to paragraph 28(d) in IFRS 8, paragraph 28(c) should also clearly indicate that the reconciliation of the total of the reportable segments' assets to the entity's assets should be reported in accordance with paragraph 23 if such amounts are regularly provided to the chief operating decision maker.

The IASB noted that not amending paragraph 28(c) when paragraph 23 was amended was merely an unintended oversight.

The effective date of the standard is for years beginning on or after 1 July 2014.

The Group expects to adopt the standard for the first time in the 2016 consolidated and separate annual financial statements.

It is unlikely that the standard will have a material impact on the Company's consolidated and separate annual financial statements.

IFRS 9 Financial InstrumentsThis new standard is the first phase of a three phase project to replace IAS 39 Financial Instruments: Recognition and Measurement. To date, the standard includes chapters for classification, measurement and derecognition of financial assets and liabilities. The following are the main changes from IAS 39:

• Financial assets will be categorised as those subsequently measured at fair value or at amortised cost.

• Financial assets at amortised cost are those financial assets where the business model for managing the assets is to hold the assets to collect contractual cash flows (where the contractual cash flows represent payments of principal and interest only). All other financial assets are to be subsequently measured at fair value.

• Under certain circumstances, financial assets may be designated as at fair value.

• For hybrid contracts, where the host contract is an asset within the scope of IFRS 9, then the whole instrument is classified in accordance with IFRS 9, without separation of the embedded derivative. In other circumstances, the provisions of IAS 39 still apply.

• Voluntary reclassification of financial assets is prohibited. Financial assets shall be reclassified if the entity changes its business model for the management of financial assets. In such circumstances, reclassification takes place prospectively from the beginning of the first reporting period after the date of change of the business model.

• Financial liabilities shall not be reclassified.

• Investments in equity instruments may be measured at fair value through other comprehensive income. When such an election is made, it may not subsequently be revoked, and gains or losses accumulated in equity are not recycled to profit or loss on derecognition of the investment. The election may be made per individual investment.


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2. New Standards and Interpretations (continued)• IFRS 9 does not allow for investments in equity instruments to be measured at cost.

• The classification categories for financial liabilities remains unchanged. However, where a financial liability is designated as at fair value through profit or loss, the change in fair value attributable to changes in the liabilities credit risk shall be presented in other comprehensive income. This excludes situations where such presentation will create or enlarge an accounting mismatch, in which case, the full fair value adjustment shall be recognised in profit or loss.





IFRS 13 - Annual improvements for 2010 - 2012 cycleFair Value Measurement: Short-term receivables and payables:

The objective of the project is to clarify the IASB’s rationale for removing paragraph B5.4.12 of IFRS 9 Financial Instruments and paragraph AG79 of IAS 39 Financial Instruments: Recognition and Measurement as consequential amendments from IFRS 13 Fair Value Measurement. Those paragraphs in IFRS 9 and IAS 39 contained a guidance related to the measurement of short-term receivables and payables with no stated interest rate at invoice amounts. The IASB proposes to carry out this clarification through an amendment to the Basis for Conclusions of IFRS 13 via the Annual Improvements project.

The amendment to the Basis for Conclusions of IFRS 13 clarifies that when deleting those paragraphs, the IASB did not intend to change the measurement requirements for short-term receivables and payables, because it noted that IFRS 13 contains guidance for using present value techniques to measure fair value and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, addresses materiality in applying accounting policies. However, the IASB was informed that some users of IFRS think that the deletion means that the measurement requirements have changed.




IFRS 13 - Annual improvements for 2011 - 2013 cycleFair Value Measurement: Scope of paragraph 52 (portfolio exception):

Paragraph 52 of IFRS 13 includes a scope exception for measuring the fair value of a group of financial assets and financial liabilities on a net basis. This is referred to as the portfolio exception. The objective of this amendment is to clarify that the portfolio exception applies to all contracts within the scope of IAS 39 Financial Instruments: Recognition and Measurement or IFRS 9 Financial Instruments, regardless of whether they meet the definitions of financial assets or financial liabilities as defined in IAS 32 Financial Instruments: Presentation. The IASB was made aware that it was not clear whether the scope of the exception for measuring the fair value of a group of financial assets and financial liabilities on a net basis (the ‘portfolio exception’) set out in paragraph 52 includes all contracts that are within the scope of IAS 39 or IFRS 9. In particular, questions were raised about whether the scope of the portfolio exception included contracts that are accounted for as if they were financial instruments, but that do not meet the definitions of financial assets or financial liabilities in IAS 32, such as some contracts to buy or sell non-financial items that can be settled net in cash or another financial instrument, or by exchanging financial instruments, as if the contracts were financial instruments.

The IASB did not intend to exclude such contracts from the scope of the portfolio exception. Consequently, the IASB proposes to amend paragraph 52 of IFRS 13 to clarify that the portfolio exception applies to all contracts within the scope of IAS 39 or IFRS 9, regardless of whether they meet the definitions of financial assets or financial liabilities as defined in IAS 32.


2. New Standards and Interpretations (continued)The Group expects to adopt the standard for the first time in the 2016 consolidated and separate annual financial statements. It is unlikely that the standard will have a material impact on the Company's consolidated and separate annual financial statements.

IFRS 15 - Revenue from Contracts with Customers PlansThe effective date of the standard is for years beginning on or after 1 January 2017.


IAS 24 - Annual improvements for 2010 - 2012 cycleKey management personnel services:

In 2010, the Interpretations Committee received a request asking whether key management personnel (KMP), as defined in IAS 24 Related Party Disclosures, could include an entity or whether it could only apply to individuals. This issue was originally referred to the Interpretations Committee because it is common in some industries, such as mutual fund management, that key management personnel services can be provided in a variety of ways. It is clear in IAS 24 that KMP employed directly by the reporting entity, or through a related-party KMP service provider, are identified as a related party. The concerns about the identification of KMP costs arise when KMP services to the reporting entity are provided by entities that do not otherwise meet the definition of a related party provider. The IASB proposes that the management entity providing KMP services should be identified as a related party of the reporting entity; an exemption should be granted from the detailed disclosure requirements in paragraph 17 of IAS 24 in respect of KMP services provided by a management entity; and payments made to a management entity in respect of KMP services should be separately disclosed by extending the disclosure requirements in paragraph 18 of IAS 24.




All standards and interpretations will be adopted at their effective dates.

Management has not yet determined the extent to which the improvements and amendments to the standards will impact the Company.

3. Segmental information

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 the Telecom Grouping and the MTS Grouping. 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 is 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 internal management reports that are reviewed by the Group’s Chief Executive Officer, the Chief Operating Decision Maker (CODM).

Eyeballs does not generate any income, and as a result the software development costs incurred by the company have been impaired fully in 2013 and 2014.


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3. Segmental information (continued)2014 Telecom MTS Corporate Inter-segment Total Grouping Grouping Office transactionsTotal revenue 288 329 922 6 426 319 - (91 178 333) 203 577 908Cost of sales (194 492 453) - - 85 154 329 (109 338 124)

Gross profit 93 837 469 6 426 319 - (6 024 004) 94 239 784Other income 5 976 030 - 563 346 (4 997 409) 1 541 967Operating expenses: Administration expenses (32 084 603) (2 196 103) (1 402 845) 11 021 413 (24 662 138)Employee costs (48 863 189) (815 346) (1 346 330) - (51 024 865)Selling and distribution (1 873 557) (11 389) (5 855) - (1 890 801)Impairment of non-current assets - (239 747) - - (239 747)

Operating profit (loss) 16 992 150 3 163 734 (2 191 684) - 17 964 200Investment income 718 845 - 378 364 (76 050) 1 021 159Net change in fair value of financial instruments 531 447 - (1 335 751) - (804 304)Profit from equity accounted investments 73 170 - - - 73 170Finance costs (2 036 593) (30 960) (301 499) 76 050 (2 293 002)

Profit (loss) before income tax 16 279 019 3 132 774 (3 450 570) - 15 961 223Income tax (4 202 241) (1 358 637) 932 313 - (4 628 565)

Profit (loss) after income tax 12 076 778 1 774 137 (2 518 257) - 11 332 658

2013

Total revenue 389 622 607 175 000 - (123 476 330) 266 321 277Cost of sales (310 748 016) - - 123 476 330 (187 271 686)

Gross profit 78 874 591 175 000 - - 79 049 591Other income 3 911 637 - - (2 729 654) 1 181 983Administration expenses (17 077 066) (4 293 684) (1 049 842) - (22 420 592)Employee costs (45 235 453) (875 722) (1 395 224) - (47 506 399)Selling and distribution (2 668 591) (447 732) (23 645) - (3 139 968)Impairment of Eyeballs Intangible - Eyeballs Technology at company level - (5 211 270) - - (5 211 270) Impairment of Eyeballs Intangible - Eyeballs Technology at consolidation - (3 210 859) - - (3 210 859)

Operating profit (loss) 17 805 118 (13 864 267) (2 468 711) (2 729 654) (1 257 514)Investment income 832 416 - 478 591 - 1 311 007Net change in fair value of financial instruments (2 018 527) - (4 022 750) - (6 041 277)Profit from equity accounted investments 67 063 - - - 67 063Finance costs (2 675 456) (28 603) (1 000 974) - (3 705 033)

Profit (loss) before income tax 14 010 614 (13 892 870) (7 013 844) (2 729 654) (9 625 754)Income tax (4 062 994) 2 243 080 (443 924) - (2 263 838)

Profit (loss) after income tax 9 947 620 (11 649 790) (7 457 768) (2 729 654) (11 889 592)

3. Segmental information (continued) Telecom MTS Corporate Inter-segment Total Grouping Grouping Office transactions

Assets and liabilities - 2014Non-current assets 226 544 647 34 059 328 3 813 803 - 264 417 778 Current assets 76 277 874 112 875 4 333 617 - 80 724 366

302 822 521 34 172 203 8 147 420 - 345 142 144

Non-current liabilities (2 171 255) (6 058 990) - - (8 230 245) Current liabilities (118 170 353) 4 116 264 (6 701 348) - (120 755 437)

(120 341 608) (1 942 726) (6 701 348) - (128 985 682)

Assets and liabilities - 2013Non-current assets 259 364 512 7 755 447 3 180 119 (2 729 654) 267 570 424Current assets 84 722 689 756 098 9 335 138 - 94 813 925

344 087 201 8 511 545 12 515 257 (2 729 654) 362 384 349

Non-current liabilities (7 904 524) - - - (7 904 524)Current liabilities (138 529 808) (594 066) (5 581 617) - (144 705 491)

(146 434 332) (594 066) (5 581 617) - (152 610 015)

The total assets and liabilities of each reportable segment are not provided to the CODM regularly. The CODM reviews the Group statement of financial position.

The Company provides the Corporate Office function.

There are no customers in any segment of the Group to whom sales equal or exceed three per cent of total revenue.

4. Property, plant and equipment

Group 2014 2013 Cost Accumulated Carrying Cost Accumulated Carrying depreciation value depreciation value

Plant and machinery 220 983 (220 983) - 220 983 (191 579) 29 404Furniture and fixtures 256 938 (125 798) 131 140 1 153 773 (928 022) 225 751Motor vehicles 2 278 162 (1 385 548) 892 614 1 747 371 (1 022 461) 724 910Office equipment 822 266 (822 266) - 823 758 (459 562) 364 196IT equipment 5 053 099 (3 982 352) 1 070 747 6 114 218 (5 093 783) 1 020 435Leasehold improvements 283 629 (178 839) 104 790 289 901 (150 106) 139 795Router equipment 65 223 534 (32 972 260) 32 251 274 58 785 113 (28 800 025) 29 985 088

Total 74 138 611 (39 688 046) 34 450 565 69 135 117 (36 645 538) 32 489 579


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4. Property, plant and equipment (continued)

Reconciliation of property, plant and equipment - Group - 2014

Opening Additions Disposals Depreciation Impairment Total balance loss

Plant and machinery 29 404 - - (29 404) - -Furniture and fixtures 225 751 10 060 - (104 384) (287) 131 140Motor vehicles 724 910 571 471 (73 214) (330 553) - 892 614Office equipment 364 196 - - (363 288) (908) -IT equipment 1 020 435 488 470 - (438 158) - 1 070 747Leasehold improvements 139 795 - - (35 005) - 104 790Router equipment 29 985 088 6 438 420 - (4 172 234) - 32 251 274

32 489 579 7 508 421 (73 214) (5 473 026) (1 195) 34 450 565

Reconciliation of property, plant and equipment - Group - 2013

Plant and machinery 51 442 - - (22 038) - 29 404Furniture and fixtures 336 715 80 807 - (191 771) - 225 751Motor vehicles 992 424 - - (267 514) - 724 910Office equipment 609 895 5 526 - (251 225) - 364 196IT equipment 1 239 618 230 282 - (442 778) (6 687) 1 020 435Leasehold improvements 109 577 103 720 - (73 502) - 139 795Router equipment 29 685 393 973 292 - (673 597) - 29 985 088

33 025 064 1 393 627 - (1 922 425) (6 687) 32 489 579

Change in accounting estimate

During the current financial year, the estimated residual values and useful life of all Router Equipment was reassessed. An estimation of the impact of this change in estimate in future periods is not provided as it is impracticable to do so.

Encumbered assets

Five (2013: Five) light commercial vehicles with a carrying value of R542 470 (2013: R497 070) serve as security for instalment sale agreements concluded with Wesbank, a division of FirstRand Bank.

Two (2013: Nil) light commercial vehicles with a carrying value of R284 180 (2013: R Nil) serve as security for instalment sale agreements concluded with Merchant West Proprietary Limited.

5. Goodwill

Group 2014 2013 Cost Accumulated Carrying Cost Accumulated Carrying depreciation value depreciation value

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 on 9 July 2007 and on the acquisition of Huge Mobile on 13 August 2007. These businesses are measured and viewed as one 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.

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5. Goodwill (continued)

The recoverable amount or value in use was determined by discounting the future cash flows generated by the Telecom Grouping consisting of Huge Telecom and Huge Mobile. The valuation of the Goodwill attributable to the Telecom Grouping, based on the valuation performed by Managhan SA Proprietary Limited, is R243 241 000 (2013: R233 199 000).

The assumptions used in computing the value in use are based on estimates provided by management, which take account of future expectations related to changes in the market in which the Telecom Grouping operates. The weighted average cost of capital (WACC) is represented by a pre-tax discount rate which is based on a risk free rate of return, adjusted by a premium in respect of the Telecom Grouping and the market in which the Grouping operates and a Beta to reflect an appropriate level of volatility. The assumptions are:

• revenue growth rate of 12.5% for the years to 28 February 2015 and 2016 (2013: 7.5%), 11.5% for the years to 28 February 2017 and 2018 (2013: 7.5%) and 10.5% for the year to 28 February 2019;

• cost of sales growth rate of -5.5% for the year to 28 February 2015 (2013: 8.69%), 12.5% for the year to 29 February 2016 (2013: 7.5%), 11.5% for the years to 28 February 2017 and 2018 (2013: 7.5%) and 23.2% for the year to 28 February 2019;

• operating costs increasing at a growth rate of 44.5% for the year to 28 February 2015 (2013: 6.5%), and 7% for the years from 28 February 2016 to 2019 (2013: 6.5% for 2016 to 2018);

• a weighted average cost of capital represented by a pre-tax discount rate of 16.06 % (2013: 15.59%); and

• a terminal growth rate of 4.5% (2013: 5%).

Whilst the value in use calculation demonstrates no impairment at year end, the calculation is sensitive to the following inputs, particularly (assuming all others remain constant):

• an increase in the WACC;

• a decrease in the forecast gross profit percentage; and

• a decrease in the expected revenue growth rates over the five year forecast period.

At this stage, no tested changes would have resulted in an impairment.

The directors of Huge continue to assess the industry and the possible changes that could impact the Goodwill.


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6. Intangible assets

Group 2014 2013 Cost Accumulated Carrying Cost Accumulated Carrying amortisation value amortisation value

Trademarks and other rights - - - 105 873 (47 270) 58 603Computer software internally generated 19 564 956 (17 759 382) 1 805 574 10 060 414 (7 635 868) 2 424 546Computer software, purchased 2 582 818 (1 579 858) 1 002 960 2 373 622 (1 781 895) 591 727Customer base & patents - - - 168 649 - 168 649

Total 22 147 774 (19 339 240) 2 808 534 12 708 558 (9 465 033) 3 243 525

Reconciliation of intangible assets - Group - 2014

Opening balance Additions Amortisation Impairment loss Total

Trademarks and other rights 58 603 - - (58 603) -Computer software, internally generated 2 424 546 1 364 603 (1 983 575) - 1 805 574Computer software, purchased 591 727 505 469 (94 236) - 1 002 960Customer base and patents 168 649 11 300 - (179 949) -

3 243 525 1 881 372 (2 077 811) (238 552) 2 808 534

Reconciliation of intangible assets - Group - 2013

Opening balance Additions Transfers Amortisation Impairment loss Total

Trademarks and other rights 52 232 6 371 - - - 58 603Computer software, internally generated 7 718 687 1 497 512 319 000 (1 899 383) (5 211 270) 2 424 546Computer software, purchased 1 037 462 108 553 (319 000) (235 288) - 591 727Customer base and patents 162 070 6 579 - - - 168 649Eyeballs Technology 6 421 719 - - (3 210 859) (3 210 860) -

15 392 170 1 619 015 - (5 345 530) (8 422 130) 3 243 525

Eyeballs Technology

There is no indication that the Eyeballs Technology will be able to be sold in the open market or recovered through use and as a result it has been impaired fully. All funding for the development has been stopped.

This asset belongs to the MTS Grouping segment.

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7. Investments in subsidiary companies

Name of company Held by % holding and % holding and Carrying Carrying voting rights voting rights amount 2014 amount 2013 2014 2013

Eyeballs Huge 77.00 % 77.00 % 6 000 000 6 000 000Huge Mobile Huge 100.00 % 100.00 % 69 411 943 69 411 943Huge Software Huge 100.00 % 100.00 % 100 100Huge Telecom Huge 100.00 % 100.00 % 113 343 379 113 343 379Ambient Huge Telecom 49.99 % 50.03 % - -Legacy Huge Telecom 49.67 % 49.67 % - -

Gross carrying amount 182 755 422 182 755 422Provision for impairment of investment in Huge (69 411 943) -MobileProvision for impairment of investment in Eyeballs (6 000 000) (4 658 559)

Net carrying amount 113 343 479 184 096 863

The above mentioned subsidiary companies are incorporated and have their effective place of business in South Africa.

The carrying amounts of subsidiary companies are shown net of impairment losses.

The investments in Eyeballs and Huge Mobile were impaired by R75 411 943 (2013: R4 658 559), due to the uncertainty of the recoverability of the carrying amounts of these investments.

All the rights, title and interest to 30% of the issued share capital of Huge Telecom and 30% of the issued share capital of Huge Mobile are pledged and ceded as continuing general covering collateral security for the payment and performance of the obligations of Huge Telecom and Huge Mobile to Vodacom.

Subsidiary companies with less than 50% of the voting power held

Although Huge Telecom holds less than 50% of the voting power in Ambient and Le Gacy, each of the investments is considered a subsidiary company as the definition of control in IFRS 10 has been satisfied.

Company 2014 2013

Net asset value of subsidiary companies with restrictionsHuge Mobile (6 413 598) (4 589 297)Huge Telecom 18 237 265 1 361 678

11 823 667 (3 227 619)


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8. Investment in joint venture company

Name of company Held by % holding % holding Carrying Carrying 2014 2013 amount 2014 amount 2013

Gonondo Huge Telecom 50.00 % 50.00 % 702 463 629 293

The above mentioned joint venture company is incorporated and has its effective place of business in South Africa.

The carrying amount of the interest in the joint venture is shown net of impairment losses.

Group Company 2014 2013 2014 2013

Fair value

The movement in the carrying amount of the investment in the joint venture company is as follows:Opening balance 629 293 562 230 - -Share of retained earnings 73 170 67 063 - -

Closing balance 702 463 629 293 - -

The Group's share of earnings in the joint venture company is made up as follows:Profit from the joint venture company 323 170 317 063 - -Dividends received (250 000) (250 000) - -

Share of retained earnings from the joint venture company 73 170 67 063 - -

Summary of Group's interest in the joint venture company

Statement of financial position

Non-current assets 152 487 152 487 - -Current assets 540 743 351 617 - -Long-term liabilities - non-interest bearing (42 696) (42 696) - -Current liabilities - non-interest bearing (83 753) (40 967) - -

Equity 566 781 420 441 - -

Statement of comprehensive income

Revenue 1 361 911 1 452 829 - -Other expenses (1 217 227) (1 237 042) - -Depreciation of property, plant and equipment - (1 187) - -Amortisation of intangible assets - (37 847) - -Investment income 1 656 19 254 - -Income tax expense - (61 882) - -

Profit for the year 146 340 134 125 - -

Statement of cash flows

Cash flows from operating activities 465 260 197 521 - -Cash flows from financing activities (500 000) (500 000) - -

Net cash outflow (34 740) (302 479) - -

9. Other financial assets

Group Company 2014 2013 2014 2013

At fair value through profit or loss

Listed shares - 298 630 - 298 630235 142 ordinary shares in Jasco Limited were valued based on the last price at which the share traded on the JSE. The investment was sold during the year under review.

Derivative margin depositsSSFs - margin deposits - 5 631 149 - 5 390 485CFDs - margin deposits 3 400 079 2 489 598 - -

3 400 079 8 419 377 - 5 689 115

Non-current assetsAt fair value through profit or loss - 298 630 - 298 630

Current assetsAt fair value through profit or loss 3 400 079 8 120 747 - 5 390 485

3 400 079 8 419 377 - 5 689 115

10. Deferred tax

Deferred tax asset 11 302 734 15 755 915 3 813 803 2 881 489Deferred tax liability (7 771 325) (7 595 942) - -

3 531 409 8 159 973 3 813 803 2 881 489

Reconciliation of deferred tax asset (liability) Balance at the beginning of the year 8 159 973 10 460 575 2 881 489 2 437 565Included in income tax expense (4 628 564) (2 263 837) 932 314 443 924Included in other comprehensive income - 424 189 - -Other - (460 954) - -

3 531 409 8 159 973 3 813 803 2 881 489

Composition of deferred taxTax losses available for set-off against future taxable income 7 591 203 15 180 863 3 813 803 2 965 105Allowance for doubtful debts 297 616 313 787 - -Accrual for leave pay 551 022 254 357 - -Property, plant and equipment (4 899 417) (7 512 326) - -Finance leases (9 015) 6 908 - -Investment in Jasco Limited - (83 616) - (83 616)

3 531 409 8 159 973 3 813 803 2 881 489

Recognition of deferred tax assets

Deferred tax assets have been raised on assessed tax losses based on conservative forecasts of future taxable income. The directors are satisfied that the deferred tax assets will be recovered.


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11. Inventories

Group Company 2014 2013 2014 2013

Airtime subject to legal dispute - 4 020 004 - 4 020 004Airtime - 1 722 240 - -

- 5 742 244 - 4 020 004

During the current financial year, all subscription packages which included airtime minutes that were carried forward for a period of six months, were converted to month-to-month contracts without carry forward airtime minutes. As a result, Huge Telecom and Huge Mobile no longer carry airtime minutes as Inventory.

Airtime subject to legal dispute, which in the previous financial year was carried as Inventory, is now reflected as Items subject to legal dispute under Trade and other receivables. Refer note 13.

12. Loans to (from) Group companies

Subsidiary companies

Huge Telecom - - (41 432 366) (5 514 945)The loan is unsecured, interest free and has no fixed terms of repayment. Huge Telecom has no intention to seek repayment of this loan in the next 12 months.

Eyeballs - 21 413 222 20 926 231The loan is unsecured, interest free, and has been subordinated by the Company. There is no intention to recall this loan in the next 12 months.

Huge Software - - 45 891 927 14 208 992The loan is unsecured, interest free and has been subordinated by the Company. There is no intention to recall this loan in the next 12 months.

Huge Mobile - - 9 262 100 1 401 392The loan is unsecured, interest free and has been subordinated by the Company. There is no intention to recall this loan in the next 12 months.

- - 35 134 883 31 021 670Impairment of Eyeballs - - (21 413 222) (16 247 680)Impairment of Huge Mobile - - (9 262 100) -

- - 4 459 561 14 773 990

Current assets - - 45 891 927 20 288 935Current liabilities - - (41 432 366) (5 514 945)

- - 4 459 561 14 773 990

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13. Trade and other receivables Group Company 2014 2013 2014 2013

Trade receivables 19 809 668 25 606 346 - 117 631Staff loans 187 828 48 969 - -Deposits 583 868 661 149 - -VAT - 2 890 984 20 375 -Other receivables 2 027 945 - 299 581 -Items subject to legal dispute 46 610 840 41 615 893 4 033 132 -

69 220 149 70 823 341 4 353 088 117 631

Trade and other receivables ceded as security

Huge Telecom has ceded, as security, all its rights, title and interest in and to the Huge Telecom book debts of R19 569 252 (2013: R24 261 381) to FirstRand Bank (refer to note 15).

Items subject to legal dispute

Dispute between MTNSP and Huge Telecom - refer to note 41 for details in respect of the receivables amount which is the subject of legal dispute.

14. Deferred DIBs

Deferred DIBs 3 766 635 - - -

Deferred DIBs consist of DIB commissions paid to business partners at the date of inception of contracts with clients where the duration and benefits of such contracts extend into future financial years.

15. Cash and cash equivalents

Cash and cash equivalents consist of: Cash on hand 2 855 4 919 - -Bank balances 4 170 244 9 958 270 904 1 164Bank overdraft (10 000 645) (14 827 390) - -

(5 827 546) (4 864 201) 904 1 164

Current assets 4 173 099 9 963 189 904 1 164Current liabilities (10 000 645) (14 827 390) - -

(5 827 546) (4 864 201) 904 1 164

FirstRand Bank acts as bankers to the following companies within the Group by providing these companies with current account facilities:

• Huge• Huge Telecom• Huge Cellular• Huge Software• Eyeballs• Le Gacy


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15. Cash and cash equivalents (continued)Nedbank acts as banker, and provides current account facilities, to:

• Huge Mobile• Ambient

Huge Telecom has entered into an agreement with FirstRand Bank for the provision of the following additional banking facilities which are subject to annual review and where amounts owing are repayable on demand:

• Short term direct single account debtor finance facility of R16 450 000.• Settlement encashment facility of R8 000.• Settlement payments and collection service facility of R2 000 000.

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 given by the following persons/entities for the

obligations to FirstRand Bank by Huge Telecom:

Surety Amount (R)Anton Daniel Potgieter 9 300 000James Charles Herbst 9 300 000Vincent Mokhele Mokholo 1 500 000Huge Mobile UnlimitedHuge Group Unlimited

• Unlimited cession in favour of FirstRand Bank of credit balances held at FirstRand Bank amounting to R3 195 910.

• Subordination by Huge of its loan account balances held against Huge Telecom in favour of FirstRand Bank;

• Cession by Huge Telecom of any and all rights which it has against its debtors, from time to time, upon terms and conditions acceptable to FirstRand Bank;

• Subordination of director's loan by James Charles Herbst in Huge Telecom; and

• Subordination of director's loan by Anton Daniel Potgieter in Huge Telecom. 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).

Covenants• Undertaking by Huge Telecom not to incur any further interest bearing debt without the prior permission

of FirstRand Bank;

• All guarantees issued by FirstRand Bank are to be covered by ceded and pledged cash balances, to be held in suitable FirstRand Bank investment type accounts;

• Undertaking by Huge Telecom and Huge 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 excluding any intangible assets, goodwill, unsubstantiated investments, debit loans, deferred tax assets, fair value adjustments and non-distributable reserves;

• Undertaking by Huge Telecom and Huge to not encumber any of their assets without the prior written consent of FirstRand Bank;

• Undertaking by Huge Telecom to not, otherwise than in the ordinary course of business, either in a single transaction or in a series of transactions, whether related or not and whether voluntary or 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;

15. Cash and cash equivalents (continued)• Undertaking by Huge Telecom and Huge to maintain EBIT at a ratio that is three times the amount of

interest payable during any six consecutive month period;

• Undertaking by Huge Telecom and Huge to not pay dividends without the prior written consent of FirstRand Bank;

• Undertaking by Huge Telecom to not, in terms of section 48 of the Companies Act, reduce its share capital or cause any of its subsidiary companies to do so, without the prior written consent of FirstRand Bank;

• Any change in ownership of Huge Telecom in excess of 5%, or any change in the de facto or other control of Huge Telecom, will entitle FirstRand Bank to review and amend the terms and conditions of the facility or to cancel the facility; and

• The subordinated loan account in respect of Anton Daniel Potgieter may be repaid at a rate of R5 million and thereafter R300 000 per month subject to the facility terms and conditions being in compliance.

The Group is in breach of its covenants due to the fact that the Group's adjusted equity was not maintained 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).

Credit quality of cash at bank and short term deposits, excluding cash on hand

The credit quality of cash at bank and short term deposits, is based on the following Moody's ratings:

Group Company 2014 2013 2014 2013

Credit ratingBaa1 4 170 244 995 827 904 1 164

16. Financial assets by category

The accounting policies for financial instruments have been applied to the line items below:

Group - 2014 Loans and receivables Fair value Total through profit or loss

Derivative margin deposits - 3 400 079 3 400 079Trade and other receivables 68 636 281 - 68 636 281Cash and cash equivalents 4 173 099 - 4 173 099

72 809 380 3 400 079 76 209 459

Group - 2013

Investments - Jasco Limited - 298 630 298 630Derivative margin deposits - 8 120 747 8 120 747Trade and other receivables 67 271 208 - 67 271 208Cash and cash equivalents 9 963 189 - 9 963 189

77 234 397 8 419 377 85 653 774


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16. Financial assets by category (continued)

Company - 2014

Loans and receivables Fair value Total through profit or loss

Loans to group companies 45 891 927 - 45 891 927Trade and other receivables 4 332 713 - 4 332 713Cash and cash equivalents 904 - 904

50 225 544 - 50 225 544

Company - 2013

Loans to group companies 20 288 935 - 20 288 935Investments - Jasco Limited - 298 630 298 630Derivative margin deposits - 5 390 485 5 390 485Trade and other receivables 117 631 - 117 631Cash and cash equivalents 1 164 - 1 164

20 407 730 5 689 115 26 096 845

The carrying amounts of these financial assets approximate their fair value.

Valuation method of 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.

Group - 2014 Level 1 Level 2 Level 3 Total

Derivative margin deposits - 3 400 079 - 3 400 079

Group - 2013 Level 1 Level 2 Level 3 Total

Investments 298 530 - - 298 530Derivative margin deposits - 8 120 747 - 8 120 747

298 530 8 120 747 - 8 419 277

Company - 2014 Level 1 Level 2 Level 3 Total

Investments - - - -Contracts for Difference - - - -

Company - 2013 Level 1 Level 2 Level 3 Total

Investments 298 630 - - 298 630Contracts for Difference - 5 390 485 - 5 390 485

298 630 5 390 485 - 5 689 115

17. Share capital

Group Company 2014 2013 2014 2013

Authorised share capital1 000 000 000 Shares 100 000 100 000 100 000 100 000

Reconciliation of number of shares in issueIssued Shares 98 961 443 98 961 443 98 961 443 98 961 443Shares held by Huge Telecom as treasury shares (18 706 926) (9 706 926) - -

80 254 517 89 254 517 98 961 443 98 961 443

Issued share capital

Number Share Share Share Share of Shares capital premium capital premium Group Group Company Company R R R R

Opening balance at 1 March 2012 90 241 617 9 024 214 395 558 9 989 224 543 364Share repurchases during the year (927 100) (93) (974 429) (93) (974 429)Shares purchased by Huge Telecom during the year (60 000) (6) (68 994) - -

Opening balance at 1 March 2013 89 254 517 8 925 213 352 135 9 896 223 568 935Treasury Shares (9 000 000) (900) (4 949 630) - -Transfer of Shares - - - - 1 143 730

Closing balance at 28 February 2014 80 254 517 8 025 208 402 505 9 896 224 712 665

Treasury shares

Opening balance at 1 March 2012 9 646 926 965 9 867 447 - -Purchased in 2013 60 000 6 66 071 - -

Opening balance at 1 March 2013 9 706 926 971 9 933 518 - -Purchased in 2014 9 000 000 900 4 949 630 - -

Closing balance at 28 February 2014 18 706 926 1 871 14 883 150 - -

Total share capitalIssued Shares 8 025 8 925 9 896 9 896Share premium 208 402 505 213 352 135 224 712 665 223 568 935

208 410 530 213 361 060 224 722 561 223 578 831

During the year under review Huge Telecom acquired 9 000 000 (2013: 60 000) Shares in the open market for a consideration of R4 950 000 (2013: R69 002) at a price of 55 cents per Share (2013: 115 cents).


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17. Share capital (continued)

The acquisition of the Shares as referred to above has resulted in Huge Telecom holding 18.9% of the issued share capital of Huge. This is a contravention of section 48 (2) of the Companies Act which provides that a company’s subsidiary companies may not hold, in total, more than 10% of the number of shares issued by the holding company. The Group’s auditors reported this matter to the Independent Regulatory Board of Auditors on the basis that they had reason to believe that a Reportable Irregularity may have taken place in terms of section 45 of the Auditing Profession Act 45 of 2005 (APA). This matter was also brought to the attention of the directors of the Company, and has been reported in the Auditors' Report to these AFS. The matter has been remedied since year end by Huge Telecom declaring a dividend in specie of 9 060 000 Shares. Accordingly, the Group’s auditors are satisfied that there is no longer a possible Reportable Irregularity (to the extent that a Reported Irregularity as defined in the APA had in fact taken place).

The unissued 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 12 July 2013. This authority remains in force until the next annual general meeting to be held on 19 August 2014.

3 904 579 Shares in Huge are the subject of 3 904 579 CFDs held with Nedbank. Huge Telecom has lodged an initial margin equal to 100% of the value of the underlying reference instruments to these CFDs, being Huge Shares.

359 200 Shares in Huge were the subject of 3 592 SSFs held with the South African Futures Exchange. Huge Telecom lodged an initial margin equal to 100% of the value of the underlying reference instruments to these SSFs, being Huge Shares. These SSFs were closed out in December 2013.

8 045 500 Shares in Huge were the subject of 80 455 SSFs held with the South African Futures Exchange. The Company lodged an initial margin equal to 100% of the value of the underlying reference instruments to these SSFs, being Huge Shares. These SSFs were closed out in December 2013.

A total of 3 904 579 ordinary par value shares (2013: 12 309 279) in Huge are accordingly the subject of derivative contracts.

18. Reserves

Group Company 2014 2013 2014 2013

Share option reserveOpening balance (1 074 561) (1 074 561) (1 074 561) (1 074 561)First tranche - transfer of call option premium on exercise of Directors’ Call Options 350 877 - 350 877 -Second tranche - transfer of call option premium on cancellation of Directors’ Call Options 241 228 - 241 228 -

Closing balance (482 456) (1 074 561) (482 456) (1 074 561)

Share option reserve consisting of:First tranche - Directors’ Call Options held against directors and past directors - (350 877) - (350 877)Second tranche - Directors’ Call Options held against directors and past directors (482 456) (723 684) (482 456) (723 684)

(482 456) (1 074 561) (482 456) (1 074 561)

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18. Reserves (continued)

First Tranche – Directors’ Call Options

The First Tranche - Directors’ Call Options over 2 336 000 Shares acquired by Huge on 14 June 2010, consisted of five reducing balance call options embedded in single call option agreements signed by Huge with eight past and present directors of Huge Telecom. At each successive call option exercise date the number of Shares underlying the respective call options reduced.

As at 29 February 2012:

The options against four past directors were exercised during the year ended 29 February 2012 in respect of 934 400 (233 600 x 4) Shares which were acquired for a consideration of R480 000. The Shares were subsequently cancelled.

Options in respect of 700 800 (175 200 x 4) Shares against four directors lapsed in the years prior to 1 March 2012.

As at 1 March 2012:

The following call options in respect of 700 800 (175 200 x 4) Shares were held against past and present directors of Huge Telecom at 1 March 2012:

• The 31 March 2012 Call Option, at a strike price of 51.34 cents per call option share, in respect of 175 200 Shares of Huge, exercisable on the delivery by Huge of a call option exercise notice to either of the following past directors being Vincent Mokhele Mokholo or Manogaran Pillay, or either of the following directors being Dion David Willis or Amilcar Manuel Aguiar Da Moura, within two business days of the call option exercise date.

Huge did not exercise any of its rights under the 31 March 2012 Call Options.

As at 30 November 2012:

The following call options in respect of 467 200 (116 800 x 4) Shares were held against past and present directors of Huge Telecom at 30 November 2012:

• The 30 November 2012 Call Option, at a strike price of 51.34 cents per call option share, in respect of 116 800 Shares of Huge, exercisable on the delivery by Huge of a call option exercise notice to either of the following past directors being Vincent Mokhele Mokholo or Manogaran Pillay, or either of the following directors being Dion David Willis or Amilcar Manuel Aguiar Da Moura, within two business days of the call option exercise date.

Huge did not exercise any of its rights under the 30 November 2012 Call Options.


The following call options in respect of 233 600 (58 400 x 4) Shares were held against past and present directors of Huge Telecom at 28 February 2013:

• The 31 July 2013 Call Option, at a strike price of 51.34 cents per call option share, in respect of 58 400 Shares of Huge, exercisable on the delivery by Huge of a call option exercise notice to either of the following past directors being Vincent Mokhele Mokholo or Manogaran Pillay, or either of the following directors being Dion David Willis or Amilcar Manuel Aguiar Da Moura, within two business days of the call option exercise date.

Call Options in respect of 467 200 Shares lapsed during the year ended 28 February 2013.


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18. Reserves (continued)

As at 1 March 2013:

The following call options in respect of 233 600 (58 400 x 4) Shares were held against past and present directors of Huge Telecom at 1 March 2013:

• The 31 July 2013 Call Option, at a strike price of 51.34 cents per call option share, in respect of 58 400 Shares of Huge, exercisable on the delivery by Huge of a call option exercise notice to either of the following past directors being Vincent Mokhele Mokholo or Manogaran Pillay, or either of the following directors being Dion David Willis or Amilcar Manuel Aguiar Da Moura, within two business days of the call option exercise date.


Huge did not exercise any of its rights with regard to the 31 July 2013 Call Options and accordingly the Call Options in respect of 233 600 Shares lapsed during the year ended 28 February 2014.

No further Call Options are held by Huge in respect of the First Tranche – Directors’ Call Options and the Call Option premium in respect of the lapsed options has been transferred to the Share premium account.

Second Tranche – Directors’ Call Options

The Second Tranche - Directors’ Call Options over 1 645 980 Shares acquired on 22 March 2011, consisted of five reducing balance call options embedded in single call option agreements signed by Huge with three past and present directors of Huge Telecom. At each successive call option exercise date the number of shares underlying the respective call options reduces.


Options in respect of 329 196 (2013: 109 732) Shares against three directors lapsed in the year ended 29 February 2012.

As at 1 March 2012:

The following call options in respect of 1 316 784 (2013: 438 928) Shares were held against past and present directors of Huge Telecom at 1 March 2012:

• The 31 July 2012 Call Option, at a strike price of 85 cents per call option share, in respect of 438 928 Shares of Huge, exercisable on the delivery by Huge of a call option exercise notice to either a past director being Manogaran Pillay, or any one of the present directors being Dion David Willis or Amilcar Manuel Aguiar Da Moura, within two business days of the call option exercise date.

As at 31 July 2012:On 31 July 2012, Huge exercised the 31 July 2012 Call Option against Manogaran Pillay (the exercise of the Call Option and the Call Option Agreement with Manogaran Pillay was subsequently cancelled on 20 August 2013).

Huge did not exercise any of its rights under the 31 July 2012 Call Options against Dion David Willis or Amilcar Manuel Aguiar Da Moura.

As at 28 February 2013:On the basis that the exercise of the Call Option and the Call Option Agreement with Manogaran Pillay were subsequently cancelled, the following call options in respect of 987 588 (329 196 x 3) Shares were held against past and present directors of Huge Telecom at 28 February 2013:

• The 31 March 2013 Call Option, at a strike price of 85 cents per call option share, in respect of 329 196 Shares of Huge, exercisable on the delivery by Huge of a call option exercise notice to either a past director being Manogaran Pillay, or any one of the present directors being Dion David Willis or Amilcar Manuel Aguiar Da Moura, within two business days of the call option exercise date;

Call options in respect of 329 196 Shares lapsed during the year ended 28 February 2013.

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18. Reserves (continued)As at 1 March 2013:The following call options in respect of 987 588 (329 196 x 3) Shares were held against past and present directors of Huge Telecom at 1 March 2013:

• The 31 March 2013 Call Option, at a strike price of 85 cents per call option share, in respect of 329 196 Shares of Huge, exercisable on the delivery by Huge of a call option exercise notice to either a past director being Manogaran Pillay, or any one of the present directors being Dion David Willis or Amilcar Manuel Aguiar Da Moura, within two business days of the call option exercise date.

As at 30 November 2013:The Call Option agreement between Huge and Manogaran Pillay in respect of 219 464 Shares was cancelled on 20 August 2013.

The following call options in respect of 438 928 (219 464 x 2) Shares were held against directors of Huge Telecom at 30 November 2013:

• The 30 November 2013 Call Option, at a strike price of 85 cents per call option share, in respect of 219 464 Shares of Huge, exercisable on the delivery by Huge of a call option exercise notice to any one of the directors being Dion David Willis or Amilcar Manuel Aguiar Da Moura, within two business days of the call option exercise date.

Huge did not exercise its rights under either the 31 March 2013 Call Options or the 30 November 2013 Call Options against Dion David Willis or Amilcar Manuel Aguiar Da Moura. Call Options in respect of 548 660 shares lapsed during the year ended 28 February 2014.

As at 28 February 2014:The following call options in respect of 219 464 (109 732 x 2) Shares were held against past and present directors of Huge Telecom at 28 February 2014:

• The 31 July 2014 Call Option, at a strike price of 85 cents per call option share, in respect of 109 732 Shares of Huge, exercisable on the delivery by Huge of a call option exercise notice to any one of the directors being Dion David Willis or Amilcar Manuel Aguiar Da Moura, within two business days of the call option exercise date.


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19. Non-controlling interest

Eyeballs Ambient Le Gacy TotalBalance at 29 February 2012 (760 814) 327 403 (688 085) (1 121 496)Non-controlling shareholding 23% 50.10% 50.33%Share of loss for the year (1 659 951) (264 435) (94 039) (2 018 425)

Balance at 28 February 2013 (2 420 766) 62 969 (782 124) (3 139 922)Non-controlling shareholding 23% 50.10% 50.33%Share of loss for the year (182 774) (322 293) (14 911) (519 978)

Balance at 28 February 2014 (2 603 540) (259 324) (797 035) (3 659 900)

Summary of Group’s interest in thesubsidiary companies Eyeballs - 77% Ambient - 49.90% Le Gacy - 49.67%

2014 2013 2014 2013 2014 2013Statement of financial positionNon-current assets 55 169 312 186 37 543 83 300 - -Current assets 726 25 890 141 137 214 076 14 982 41 573Current liabilities (16 900 347) (16 570 631) (1 380 346) (1 178 035) (164 059) (175 934)

Equity (16 844 452) (16 232 555) (1 201 666) (880 659) (149 077) (134 361)

Statement of comprehensive income

Revenue - 134 750 2 095 008 2 649 099 189 629 248 050Cost of sales - (3 465) (679 280) (2 192 472) (122 747) (179 840)Other income - - 137 537 - - -Other expenses (588 057) (5 666 489) (1 129 896) (679 886) (81 597) (162 193)Finance costs (23 839) (22 024) (63 588) (55 235) - -Investment income - - 1 216 2 491 - -Income tax expense - - - (216 861) - -

Profit for the year (611 896) (5 557 228) 360 997 (492 864) (14 715) (93 983)

Statement of cash flows

Cash flows from operating activities (383 257) (944 383) (530 976) (35 029) (44 534) (98 870)Cash flows from investing activities (8 702) (226 521) (3 831) - 13 644 139 076Cash flows from financing activities 391 585 1 119 726 507 051 49 612 - -

Net cash outflow (374) (51 178) (27 756) 14 583 (30 890) 40 206

20. Finance lease obligations

Group Company 2014 2013 2014 2013

Minimum lease payments due- within one year 396 368 251 337 - -- in second to fifth year inclusive 547 431 329 090 - - 943 799 580 427 - -Less: future finance charges (125 147) (58 682) - -

Present value of minimum lease payments 818 652 521 745 - -

Present value of minimum lease payments due- within one year 359 732 213 163 - -- in second to fifth year inclusive 458 920 308 582 - -

818 652 521 745 - -

Non-current liabilities 458 920 308 582 - -Current liabilities 359 732 213 163 - -

818 652 521 745 - -

The Group leases certain assets under finance lease agreements. The average lease term is 48 months ending during 2016 and the rate of borrowing is variable. Interest rates are linked to the prime overdraft rate at the contract date. Monthly instalments are R18 283 (2013: R81 438) inclusive of interest.

The Group’s obligations under finance leases are secured by the lessor’s charge over the leased assets (refer note 4).

21. Loans from shareholders

Anton Daniel Potgieter (173 244) (5 958) (173 244) (5 958)

The loan is unsecured and bears interest at a rate of 4% above the prime overdraft rate.

The loan is subordinated to FirstRand Bank as disclosed in note 15. The loan cannot be repaid without the consent of FirstRand Bank.

The subordination agreement with FirstRand Bank allowed the repayment of Anton Daniel Potgieter’s loan in monthly instalments not exceeding R300 000 (Refer note 15).


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21. Loans from shareholders (continued) Group Company 2014 2013 2014 2013

James Charles Herbst (1 172 717) (213 426) (1 172 717) (213 426)

The loan is unsecured and bears interest at a rate of 4% above the prime overdraft rate.

The loan is subordinated to FirstRand Bank as disclosed in note 15. The loan cannot be repaid without the consent of FirstRand Bank.

(1 345 961) (219 384) (1 345 961) (219 384)

Current liabilities (1 345 961) (219 384) (1 345 961) (219 384)

(1 345 961) (219 384) (1 345 961) (219 384)

22. Other financial liabilitiesHeld at amortised costNash Lewin Trust - Development loan 126 460 116 190 - -The loan is unsecured, bears interest at the prime overdraft rate and has no fixed terms of repayment.Nash Lewin Trust 5 720 14 969 - -The loan is unsecured, bears no interest and has no fixed terms of repayment.Not The Only Company Proprietary Limited – Development loan 126 460 116 190 - -The loan is unsecured, bears interest at the prime overdraft rate and has no fixed terms of repayment.Not The Only Company Proprietary Limited 75 090 75 090 - -The loan is unsecured, bears no interest and has no fixed terms of repayment.MR Beamish - Development loan 126 460 116 190 - -The loan is unsecured, bears interest at the prime overdraft rate and has no fixed terms of repayment.MR Beamish 75 090 75 090 - -The loan is unsecured, bears no interest and has no fixed terms of repayment.J Ingram 94 453 86 782 - -The loan is unsecured, bears interest at the prime overdraft rate (2013: Nil) 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.

22. Other financial liabilities (continued) Group Company 2014 2013 2014 2013EM Kerby 463 428 425 792 - -The loan is unsecured, bears interest at the prime overdraft rate (2013: Nil) 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.GB Shiers 74 785 68 712 - -The loan is unsecured, bears interest at the prime overdraft rate (2013: Nil) 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.

1 167 946 1 095 005 - -

Current liabilitiesHeld at amortised cost 1 167 946 1 095 005 - -

23. Trade and other payables

Trade payables 45 104 828 66 001 780 219 208 4 537 065VAT 755 374 - - 194 142Trade payables subject to legal dispute 55 115 866 50 784 312 4 331 554 -Accrued leave pay 107 430 - - -Payroll accruals 4 857 356 3 214 418 825 000 825 000Accrued subscriptions - 7 281 812 - -Business partner commission accrual 1 793 138 980 066 - -Deposits received 147 161 88 161 - -

107 881 153 128 350 549 5 375 762 5 556 207


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24. Financial liabilities by categoryThe accounting policies for financial instruments have been applied to the line items below:

Financial liabilities at amortised cost Total

Group - 2014Loans from shareholders 1 345 961 1 345 961Other financial liabilities 1 167 946 1 167 946Trade and other payables 107 018 349 107 018 349Bank overdraft 10 000 645 10 000 645Finance lease obligations 818 652 818 652

120 351 553 120 351 553

Group - 2013Loans from shareholders 219 384 219 384Other financial liabilities 1 095 005 1 095 005Trade and other payables 128 350 549 128 350 549Bank overdraft 14 827 390 14 827 390Finance lease obligations 521 745 521 745

145 014 073 145 014 073

Company - 2014Loans from group companies 41 432 366 41 432 366Loans from shareholders 1 345 961 1 345 961Trade and other payables 5 375 762 5 375 762

48 154 089 48 154 089

Company - 2013Loans from group companies 5 514 945 5 514 945Loans from shareholders 219 384 219 384Trade and other payables 5 362 065 5 362 065

11 096 394 11 096 394

The carrying amounts of these financial liabilities approximate their fair value.

25. Revenue Group Company 2014 2013 2014 2013

Airtime 193 069 715 255 117 183 - 34 157 815Telephone management services 2 990 592 3 519 510 - -International airtime 236 666 380 172 - -Hardware sales 1 663 272 619 919 - -Advertising - 175 000 - -SMS services 5 617 663 6 509 493 - -

203 577 908 266 321 277 - 34 157 815

26. Cost of sales Group Company 2014 2013 2014 2013

Airtime 87 933 429 173 506 878 - 29 894 501Marketing incentive rebate (2 718 002) (5 180 562) - -International airtime 151 289 285 691 - -SMS services 3 184 731 4 324 349 - -TMS services 2 095 739 13 661 733 - -Depreciation on routers 4 172 235 673 597 - -Business partner commissions 12 124 665 - - -Field support 2 394 038 - - -

109 338 124 187 271 686 - 29 894 501

27. Other income

Rental income 36 000 72 650 - -Sundry 402 412 370 085 563 345 -Bad debts recovered 38 208 97 796 - -Profit on sale of fixed assets 46 296 - - -Administration fees received 1 019 051 641 452 - -

1 541 967 1 181 983 563 345 -

28. Operating profit (loss)

Operating profit (loss) for the year is stated after accounting for the following:

Operating lease chargesPremises• Recognised on a straight-line basis 3 256 416 4 203 972 - - Motor vehicles• Recognised on a straight-line basis 90 914 - - - Equipment• Recognised on a straight-line basis 220 152 - 92 676 -

3 567 482 4 203 972 92 676 -


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28. Operating profit (loss) (continued)

Group Company 2014 2013 2014 2013

Profit on sale of property, plant and equipment (46 296) - - -Fair value adjustments of derivatives 683 423 6 076 548 1 214 870 4 022 750Fair value adjustment to investment in Jasco Limited 120 881 (35 471) 120 881 (35 471)Depreciation of property, plant and equipment 5 473 026 1 922 425 - -Amortisation of intangible assets 2 077 812 5 345 530 - -Impairment of property, plant and equipment 1 195 6 687 - -Impairment of intangible assets 238 552 8 422 130 - -Impairment of investment in MVS - 73 622 - -Impairment of loans to Group companies - - 14 427 642 16 247 680Impairment of investment in subsidiary companies - - 70 753 384 4 658 559Employee costs 51 024 865 44 536 183 1 346 330 1 395 224Contributions to defined contribution plan 3 422 831 2 970 216 - -Research and development 399 682 1 376 - -Legal expenses 2 609 601 2 567 797 - -Bad debts written off 753 686 1 847 773 - -Increase (Decrease) in doubtful debts allowance 31 812 (2 088 166) - -Audit fees 1 170 340 1 260 754 - -

29. Investment revenue

Dividends receivedJoint venture company - Local - 250 000 - -Associate company - Local - 5 996 - 5 996

- 255 996 - 5 996

Interest revenueMargin deposits 659 167 - 192 344 -Bank 108 793 843 048 9 260 632Interest charged on trade and other receivables 67 522 - 335 - Other interest received - 211 963 - 211 963Loans to shareholders 185 677 - 185 677 -

1 021 159 1 055 011 378 365 472 595

1 021 159 1 311 007 378 365 478 591

30. Net change in fair value of financial instruments

Fair value gain (loss) on CFDs 585 687 (1 874 198) - -Fair value loss on SSFs (1 269 110) (4 202 350) (1 214 871) (4 022 750)Fair value adjustment on investments (120 881) 35 271 (120 881) 35 271

(804 304) (6 041 277) (1 335 752) (3 987 479)

31. Finance costs Group Company 2014 2013 2014 2013Shareholders’ loans 142 324 409 954 60 134 277 047Non-current borrowings 23 881 10 601 - -Trade and other payables 5 706 13 268 - (168)Finance leases 1 724 571 53 789 - -Derivatives 385 619 993 291 241 365 724 095Bank 10 901 2 210 620 - -Late payment of tax - 13 510 - -

2 293 002 3 705 033 301 499 1 000 974

32. Taxation Major components of the tax expense (income)

DeferredOriginating and reversing temporary differences 4 628 565 (1 524 295) (932 313) (443 924)Arising from prior period adjustments - 3 788 133 - -

4 628 565 2 263 838 (932 313) (443 924)

Reconciliation of the tax expense:

Reconciliation between applicable tax rate and average effective tax rate:

Applicable tax rate 28.00 % 28.00 % 28.00 % 28.00 %Exempt income - % (0.47%) - % 0.01 %Disallowed expenditure 1.00 % (38.44%) (29.05%) (24.76%)Change in estimate relating to prior year - % (12.61%) - % (1.37%)

29.00 % (23.52%) (1.05%) 1.88 %

33. Earnings and headline earnings per share2014 Gross Tax NCI NetProfit attributable to ordinary equity holders of the parent entity - - 11 852 636Adjusted for:Impairment of Eyeballs Technology at Company level attributable to the Group 239 747 (67 129) (39 702) 132 916Profit on disposal of property, plant & equipment (46 296) 12 963 (33 333)

Headline earnings 193 451 (54 166) (39 702) 11 952 219

2013Loss attributable to ordinary equity holders of the parent entity - - - (9 871 164)Adjusted for:Impairment of Eyeballs Software 5 211 270 (1 459 156) - 3 752 114Impairment of Eyeballs Technology 3 210 859 (899 040) - 2 311 819Impairment of Huge Software assets 142 537 (39 910) - 102 627Impairment of investment in MVS 73 622 (20 614) - 53 008

Headline loss 8 638 288 (2 418 720) - (3 651 596)


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33. Earnings and headline earnings per share (continued) Group Company 2014 2013 2014 2013

Weighted average number of ordinary shares Issued ordinary shares at 1 March 89 254 517 90 241 617 - -Effect of treasury shares (1 724 667) (569 421) - -

Issued ordinary shares at 28 February 87 529 850 89 672 196 - -

Per share statistics Basic earnings per share 13.54 (11.01) - -Headline earnings per share 13.66 (4.07) - -Diluted basic earnings per share 13.54 (11.01) - -Diluted headline earnings per share 13.66 (4.07) - -

34. Cash generated from operations

Profit (loss) before taxation 15 961 223 (9 625 754) (88 631 596) (23 656 676)Adjustments for:Depreciation 5 473 026 1 922 425 - -Amortisation 2 077 812 5 345 530 - -Profit on sale of property, plant and equipment (46 296) - - -Dividends received - (255 996) - (5 996)Interest received (1 021 159) (1 055 011) (378 365) (472 595)Finance costs 2 293 002 3 705 033 301 499 1 000 974Impairment of non-current assets 239 747 8 428 816 - -Impairment of loans to Group companies - - 14 427 642 20 906 239 Impairment of investment in subsidiary companies - - 70 753 384 -Movement in provision for losses of associate - (736 461) - -Fair value of investment 120 806 (35 471) 120 882 (35 471)Income from joint venture (73 170) (67 063) - -Changes in working capital:Inventories 5 742 244 3 409 195 4 020 004 (214 952)Trade and other receivables 1 603 192 10 512 546 (4 235 457) 1 617Deferred DIBs (3 766 635) - - -Derivative margin deposits 4 720 668 6 036 355 5 390 485 3 870 225Trade and other payables (20 469 398) (14 875 417) (180 447) (2 888 959)

12 855 062 12 708 727 1 588 031 (1 495 594)

35. Tax refunded Group Company 2014 2013 2014 2013

Balance at beginning of the year 164 404 127 920 - -Adjustment directly in other comprehensive income - 36 763 - -Balance at end of the year (164 404) (164 404) - -

- 279 - -

36. Commitments

Network lease commitments Minimum lease payments due- within one year 1 138 600 3 908 707 - -

1 138 600 3 908 707 - -

Network lease commitments represent subscriber agreements payable by the Group for access to the networks of the MNOs and include bundled free minutes or value relating to each subscription month.

Operating leases – as lessee (expense)

Minimum lease payments due- within one year 2 502 525 5 158 502 - -- in second to fifth year inclusive - 216 000 - -

2 502 525 5 374 502 - -

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 three years and rentals are fixed for an average of one year. No contingent rent is payable.

37. Related parties

RelationshipsSubsidiary companies Huge Telecom

Huge MobileHuge CellularHuge SoftwareEyeballsAmbientLe Gacy

Jointly Controlled Arrangement GonondoShareholders Refer to shareholder analysis note 42.Entities controlled by directors which have transacted with a group company

Accknowledge Systems Proprietary Limited (Accknowledge) – (James Charles Herbst) Dee-anco Investments Proprietary Limited (Dee-anco) - (David Deetlefs)

Refer to relevant notes for terms and conditions on related party balances and transactions.


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37. Related parties (continued) Group Company 2014 2013 2014 2013

Related party balances

Loan accounts - Owing (to) by related partiesAnton Daniel Potgieter (173 244) (5 958) (173 244) (5 958)James Charles Herbst (1 172 717) (213 426) (1 172 717) (213 426)Huge Telecom - - (41 432 366) (5 515 045)Huge Mobile - - 9 262 100 1 404 392Eyeballs - - 21 413 222 20 926 231Huge Software - - 45 891 927 14 208 992Gregory Beaufort Shiers (74 785) (68 712) - -Jarrat Ingram (94 453) (86 782) - -Edward Mitchell Kerby (463 428) (425 792) - -Michael Ronald Beamish - Development loan (126 460) (116 190) - -Michael Ronald Beamish (75 090) (75 090) - -Not The Only Company Proprietary Limited - Development loan (126 460) (116 190) - -Not The Only Company Proprietary Limited (75 090) (75 090) - -The Nash Lewin Trust - Development loan (126 460) (116 190) - -The Nash Lewin Trust (5 720) (14 969) - -

Related party transactions

Interest paid to (received from) related partiesAnton Daniel Potgieter (168 886) 42 803 (168 886) 26 718James Charles Herbst 55 133 19 546 55 133 (59 623)Edward Mitchell Kerby 37 636 35 414 - -Gregory Beaufort Shiers 6 073 11 380 - -Jarrat Ingram 7 671 13 358 - -Michael Ronald Beamish - Development loan 10 270 9 436 - -Not The Only Company Proprietary Limited - Development loan 10 270 9 436 - -The Nash Lewin Trust - Development loan 10 270 9 436 - -

Purchases from (sales to) related partiesAccknowledge 410 565 308 083 - -Gonondo 1 334 419 1 946 073 - -Huge Telecom - - - (34 158 066)

37. Related parties (continued) Group Company 2014 2013 2014 2013

Dividends received from related partiesGonondo 250 000 250 000 - -Jasco Limited - 5 996 - -

Share of earningsGonondo 73 170 67 063 - -

Consulting fees paid to related partyDee-anco - 1 197 000 - -

Compensation to directors and other key managementShort-term employee benefits 12 678 238 11 092 234 1 346 330 1 313 768

38. Directors’ emoluments

Executive

Performance Medical Provident 2014 Emoluments bonus aid fund Total

James Charles Herbst 2 714 671 1 500 000 111 520 217 425 4 543 616David Deetlefs 2 019 710 758 674 - 169 091 2 947 475

4 734 381 2 258 674 111 520 386 516 7 491 091

2013

James Charles Herbst 2 932 703 - 100 040 211 991 3 244 734Vincent Mokhele Mokholo 645 000 - - - 645 000Neil Brian Wensley 720 894 - 45 311 65 292 831 497David Deetlefs 709 601 - - 47 219 756 820

5 008 198 - 145 351 324 502 5 478 051

Non-executive

2014 Directors’ fees Total

Michael Ronald Beamish 70 700 70 700Dennis Robert Gammie 282 800 282 800Stephen Peter Tredoux 282 800 282 800Vincent Mokhele Mokholo 728 985 728 985Anton Daniel Potgieter 293 910 293 910

1 659 195 1 659 195


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38. Directors’ emoluments (continued)Non-executive 2013 Directors’ fees TotalMichael Ronald Beamish 225 230 225 230Dennis Robert Gammie 154 530 154 530Vincent Mokhele Mokholo 223 000 223 000Kenneth Delroy Jarvis 80 000 80 000Brian Alexander McQueen 105 000 105 000Anton Daniel Potgieter 223 000 223 000Stephen Peter Tredoux 280 000 280 000

1 290 760 1 290 760

39. Risk management The Board has overall responsibility for the determination of the Group's risk management objectives and

policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Group's finance function. The Board recieves monthly reports from the Group Chief Financial Officer through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets.

Capital risk managementThe Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.The capital structure of the Group consists of debt, which includes the borrowings disclosed in notes 20, 21 and 22, and equity as disclosed in the statement of financial position. The Group sets the amount of capital it requires in proportion to risk. The Group manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt.There are externally imposed capital requirements. Refer to bank covenants in note 15.There have been no changes to what the entity manages as capital, the strategy for capital maintenance or externally imposed capital requirements from the previous year.

Liquidity riskPrudent 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 exposure to liquidity risk is that there may be insufficient funds available to cover future commitments. The Group manages liquidity risk through an ongoing 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. The table below analyses the Group’s financial liabilities and net-settled derivative financial liabilities into relevant maturity groupings based on the remaining period at the statement of financial position to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant. The Trade and other payables reflected in the table below include amounts subject to legal dispute of R50 784 312, whilst Trade and other receivables include an amount of R42 577 708 subject to legal dispute. The possible settlement of such legal dispute may impact on the Group’s liquidity position and the Group has considered its ability to meet such settlement in terms of its credit facilities and its ability to secure funding from its shareholders, and is satisfied that it is able to meet its commitments in this regard. Refer to note 15 of the Directors' Report and note 41 to the AFS.

39. Risk management (continued) Between Between Carrying Contractual Within 6 and 1 and No fixed Group value cash flow 6 months 12 months 5 years termsAt 28 February 2014Trade and other payables 107 125 779 107 125 779 107 125 779 - - -Finance lease obligations 818 652 818 652 - 359 732 458 920 -Other financial liabilities 1 167 946 - - 1 167 946 - -Loans from shareholders 1 345 961 - - 1 345 961 - -Bank overdraft 10 000 645 10 000 645 10 000 645 - - -

At 28 February 2013Trade and other payables 128 350 549 128 350 549 128 350 549 - - -Finance lease obligations 521 745 521 745 - 213 163 308 582 -Other financial liabilities 903 725 - - - - 903 725Loans from shareholders 219 384 - - 219 384 - -Bank overdraft 14 827 390 14 827 390 14 827 390 - - -

CompanyAt 28 February 2014Trade and other payables 5 375 762 5 375 762 5 375 762 - - -Loans from shareholders 1 345 961 - - 1 345 961 - -Loans from subsidiary companies 41 432 366 41 432 366 - 41 432 366 - -

At 28 February 2013Trade and other payables 5 362 065 5 362 065 5 362 065 - - -Loans from shareholders 219 384 - - 219 384 - -Loans from subsidiary companies 5 514 945 5 514 945 - 5 514 945 - -

Interest rate riskThe Group’s interest rate risk arises from borrowings. Borrowings incurred at variable rates expose the Group’s cash flow to change in the level of interest rates. The Group’s borrowings are denominated in Rands.

At 28 February 2014, if interest rates on Rand-denominated borrowings had been 1% higher/lower with all other variables held constant, pre-tax profit for the year of the Group would have been R79 302 (2013: R63 892) lower/higher.

At 28 February 2014, if interest rates on Rand-denominated borrowings had been 1% higher/lower with all other variables held constant, pre-tax profit for the year of the Company would have been R88 351 (2013: R281 944) lower/higher.

Group Company 2014 2013 2014 2013Variable interest rate instrumentsLoan to group companies - - 45 891 927 20 288 935Cash and cash equivalents 4 173 099 9 963 189 904 1 164Loans from shareholders (1 345 961) (219 384) (1 345 961) (219 384)Loans from group companies - - (41 432 366) (5 514 945)Other financial liabilities (1 167 946) (1 095 005) - -Finance lease obligations (818 652) (521 745) - -Bank overdraft (10 000 645) (14 827 390) - -

(9 160 105) (6 700 335) 3 114 504 14 555 770


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39. Risk management (continued)

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, investment securities and other receivables subject to legal dispute.

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:

Group Company 2014 2013 2014 2013

Financial instrumentOther financial assets 3 400 079 8 120 747 - 5 390 485Loans to group companies - - 45 891 927 20 288 935Trade receivables 22 025 441 25 655 315 299 581 117 631Other receivables subject to legal dispute 46 610 840 41 615 893 4 033 132 -Cash and cash equivalents 4 173 099 9 963 189 904 1 164

76 209 459 85 355 144 50 225 544 25 798 215

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 the impairment of debtors’ balances which 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 individual significant exposures, and a collective loss component established for groups of similar assets in respect of losses that may be incurred but have not yet been identified. The collective loss allowance is determined based on the historical data of payment statistics for similar financial assets.

Trade and other receivables past due but not impaired

Trade and other receivables which are less than one month past due are not considered to be impaired. At 28 February 2014, R5 452 235 (2013: R2 285 458) were past due but not impaired.

Group Company 2014 2013 2014 2013

The ageing of amounts past due but not impaired is as follows:30 days past due 487 485 462 553 - -60 days past due 428 252 92 - -90 days past due 590 820 276 661 - -120+ days past due 3 945 679 1 546 152 - -

39. Risk management (continued) Group Company 2014 2013 2014 2013Trade and other receivables impairedAs of 28 February 2014, trade and other receivables of R1 417 221 (2013: R1 494 223) were impaired by way of a provision. The ageing of this impairment is as follows:

120+ days 1 417 221 1 494 223 - -

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.

Reconciliation of provision for impairment of trade and other receivablesOpening balance 1 494 223 3 353 552 - -Provision for impairment raised 676 684 542 323 - -Utilised provision (753 686) (2 401 652) - -

1 417 221 1 494 223 - -

The decrease of the impairment allowance has been included in operating expenses in the statement of comprehensive income.

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 CFDs is considered negligible since the counterparties are reputable banks with high quality credit ratings.

Foreign currency riskThe Group’s transactions are carried out in Rands. The Group does not carry out any operations with international companies and therefore there is no exposure to foreign currency exchange risk.

Price riskThe Group is exposed to equity price risk on its position in CFDs (2013: SSFs and CFDs).

Number of Number of Number of Variance underlying underlying underlying of 10c shares - Huge shares - shares - Group to share Equity price risk Telecom Huge priceSSFs - - - -CFDs 3 904 579 - 3 904 579 390 458


40. Going concernThe Board is of the opinion that the business of the Company and the Group will continue to operate as a going concern in the twelve month period following the date of the approval of these AFS. In reaching this opinion, the Board has considered the following factors:

• The improvement in the Group’s operating profitability recorded in the year ended 28 February 2014;

• The expected further improvement in the Group’s profitability as reflected in the budget for the year that will end on 28 February 2015, which budget was approved by the Board during February 2014;

• The impact of the MTNSP dispute and the possible settlement thereof. Further details in this regard are provided in note 15 of the Directors’ Report and note 41 of the notes to the AFS;

• The continuing impact of lower MTRs has been carefully considered by the Board and it is the opinion of the Board that the strategies identified and implemented by the Group have optimised the advantages accruing to the Group as a result of lower MTRs;

• The terms of trade received by Huge Telecom, Huge Mobile and Huge Cellular from their major suppliers;

• Suretyships in aggregate amounting to R20.1 million have been provided by Messrs. JC Herbst, VM Mokholo and AD Potgieter in favour of FirstRand Bank as security for certain banking facilities provided by FirstRand Bank to Huge Telecom;

• The current credit facilities of the Group are sufficient to meet the ongoing funding requirements of the Company and its subsidiary companies; and

• Huge Telecom is party to certain loan agreements with FirstRand Bank. Correspondence received by the Group 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 utilised portion of such banking facilities remains reflected as a current liability.

Taking into consideration the foregoing matters of record, as well as the future cash flow projections of the Group, the Board believes that 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 AFS. Accordingly, the Company and the Group continue to adopt the going concern basis of preparing these AFS.

41. LitigationHuge Telecom is currently party to the following litigation:

Dispute between MTNSP and Huge TelecomMTNSP 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; 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 for 1) payment of the amount of R30 million; 2) interest; 3) costs of the suit; 4) further or alternative relief.

In terms of a Court Order of the South Gauteng High Court handed down by Mokgoatlheng J on 20 August 2012, the matter was 1) referred to trial; 2) the notice of motion and founding affidavit were ordered to stand as a simple summons with 3) MTNSP required to deliver a declaration and 4) the costs of the application to be the costs in the cause of a trial action.

MTNSP delivered its declaration on 1 October 2012.

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41. Litigation (continued)Huge Telecom delivered a notice in terms of Rule 23 and Rule 30 of the Uniform Rules of Court on 26 October 2012, and on 7 December 2012 MTNSP amended its declaration.

On 20 February 2013 Huge Telecom filed its Plea to MTNSP’s amended declaration. The amended declaration no longer includes a prayer for the winding up of Huge Telecom. Huge Telecom filed its Special Plea and Plea defending the action (the First Action), and on 18 April 2013 MTNSP filed a replication in response to Huge Telecom’s plea. The First Action has been set down for hearing on or about 25 August 2014.

On 15 February 2013 the Sheriff of the South Gauteng High Court served a combined summons against Huge Telecom in terms of which MTNSP prayed for judgment against Huge Telecom for payment of the sum of R56 020 357 plus interest and costs on the basis of a tacit agreement being concluded between Huge Telecom and MTNSP during September 2009, alternatively on the basis of unjustifiable enrichment at the expense of MTNSP.

On 4 March 2013, Huge Telecom filed a notice of intention to defend this action and on 18 April 2013, it filed its Special Plea and Plea defending this action (the Second Action).

On 23 July 2013, MTNSP delivered a replication in response to the Special Plea and Plea filed by Huge Telecom.

The Second Action had not been set down for hearing. On 27 March 2014, the attorneys for MTNSP requested Huge Telecom to agree to the consolidation of the First Action and the Second Action. On 8 May 2014 Huge Telecom agreed to the consolidation of the First Action and the Second Action and both will be heard on or about 25 August 2014.

The Group has recognised the assets and the liabilities relating to the MTNSP dispute at levels apropriate to the Company's assessment of the likely outcome of the legal action 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 KimberOn 22 November 2010, Kimber 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.

This claim was settled by an out of court settlement reached during August 2013, and all claims by Mr JP Kimber have been waived in full, and final settlement of the matter has been achieved.

ArbitrationDispute between Huge and Telemasters During February 2013 Telemasters cancelled an agreement with Huge Group for the supply of MTN airtime and suspended the SIM cards held by the Company.

As at 28 February 2013 Telemasters alleges that Huge is indebted to it in the amount of R4.176m. Huge has claims against Telemasters in the amount of R4.392m plus interest, in respect of amounts overcharged by Telemasters. The matter will be subject to arbitration by the Arbitration Foundation of Southern Africa. The assets and liabilities relating to this dispute have been recognised at levels appropriate to the Company’s assessment of the outcome of the arbitration hearing. A date has not yet been set for the arbitration hearing.


41. Litigation (continued)Litigation involving directors of the Company (not directly related to the Company)On 16 October 2008, Huge acquired SSFs that later became the subject of a dispute with the 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 (the JSE Findings).

Subsequent to the JSE Findings, the JSE imposed a fine of R5 million on each of Herbst and Potgieter (the Fines). Herbst and Potgieter lodged appeals with the Appeal Board of the FSB against the JSE Findings and the Fines.

On 9 July 2012, in accordance with an order of the Appeal Board of the 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 old Companies Act and section 5.69 of the LR of the JSE had been set aside, and instead replaced this with a finding that the Company, Herbst and Potgieter had breached section 5.69 read in conjunction with section 5.82 of the LR (the FSB Finding) and imposing a fine of R3 million on each of Herbst and Potgieter (the FSB Fine). Herbst and Potgieter launched review proceedings in the North Gauteng High Court requesting the North Gauteng High Court (the Court) to set aside the FSB Finding and the FSB Fine.


Other litigationThe 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 may result in a possible loss has been disclosed.

42. Shareholder analysisShareholder analysis 2014 2013 Number of Number of % Number of % Number of shareholders shares shareholding shareholders shareholding sharesPublic 278 46 847 472 47.34 287 32 645 738 32.99Non-public 11 52 113 971 52.66 15 66 315 705 67.01

289 98 961 443 100.00 302 98 961 443 100.00

Non-public shareholder analysis 2014 2013 Number of Number of Number of Number of shareholders shares shareholders sharesDirectors of Huge 4 12 146 330 6 22 247 344Non-beneficial indirect holdings relating to directors of Huge 2 15 594 824 3 20 290 844Directors of Huge Telecom 2 1 681 312 2 1 681 312Holdings underlying derivative instruments 1 3 904 579 2 12 309 279Huge Telecom 1 18 706 926 1 9 706 926Holdings of designated advisor 1 80 000 1 80 000

11 52 113 971 15 66 315 705

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115

42. Shareholder analysis (continued) 2014 2013 Number of Number of Number of Number of shareholders shares shareholders sharesMajor shareholdersHuge Telecom 18 706 926 18.90 9 706 926 9.81Peregrine Equities 12 042 029 12.17 2 202 887 2.23Eagle Creek Investments 223 Proprietary Limited 7 562 624 7.64 420 970 0.43Praesidium Family Trust 6 501 149 6.57 6 401 149 6.47Pacific Breeze* 6 432 200 6.50 6 432 200 6.50Anton Daniel Potgieter 6 163 400 6.23 6 163 400 6.23Walkie Talkie Trust 5 013 709 5.07 5 013 709 5.07Nedgroup Securities Proprietary Limited ** 3 906 494 3.95 12 335 526 12.46Luigi’s Trust *** 3 664 325 3.70 3 664 325 3.70HMT Projects Proprietary Limited 3 593 000 3.63 3 593 000 3.63Johnathan Peter Kimber 2 255 075 2.28 2 255 075 2.28Mojaho Trading Proprietary Limited **** 2 000 000 2.02 12 630 343 12.57

77 840 931 78.66 70 819 510 71.57* An indirect non-beneficial holding related to JC Herbst.

** Held as a hedge for short positions in CFDs, the long positions of which are held by Huge.

*** An indirect non-beneficial holding related to AD Potgieter.

**** An indirect non-beneficial holding and indirect beneficial holding related to VM Mokholo.

Note: The Company has amended the manner in which it classifies non-beneficial indirect holdings relating to directors of Huge, by including the holdings of associates in this figure.

Type of shareholderIndividuals 235 23 003 600 246 28 653 497Nominees and trusts 19 17 810 482 19 16 409 990Close Corporations 11 490 131 7 581 312Companies, financial institutions and other institutions 24 57 657 230 30 53 316 644

289 98 961 443 302 98 961 443Size of shareholding0 - 1 000 shares 33 9 840 39 18 8681 001 - 5 000 shares 62 158 119 61 188 3745 001 - 100 000 shares 143 4 019 765 151 4 745 458100 001 - 1 000 000 shares 34 10 830 990 35 13 915 1881 000 001 shares and over 17 83 942 729 16 80 093 555

289 98 961 443 302 98 961 443


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43. Comparative figures

Certain comparative figures have been reclassified to correctly classify administration expenses and net changes in fair value of financial instruments.

A reclassification between other financial liabilities and loans from shareholders also took place for correct disclosure purposes.

The effects of the reclassification are immaterial and are as follows:

Statement of Financial Position

Other financial liabilities - (191 280) - -Loans from shareholders - 191 280 - -

Profit or LossAdministration expenses - 35 273 - -Employee costs - (35 273) - -

44. Events after the reporting periodOn 29 May 2014 Huge Telecom declared a dividend in specie of 9 060 000 Shares held by it in order to remedy the number of Shares held by Huge Telecom at the year end. This dividend declaration resulted in the number of Shares held by Huge Telecom reducing from 18 706 926 to 9 646 926, this being 9.75% of the number of Shares in issue after the declaration of the dividend in specie. The Shares subject to this dividend declaration have been returned by Huge to its authorised share capital. Other than this matter, the Board is 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 AFS.

117

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 is hereby given that the Annual General Meeting of the Company shall be held in the Woody Woods Boardroom, First Floor, 146a Kelvin Drive, Woodmead, 2191, at 10:00 on Tuesday, 19 August 2014, to consider and if deemed fit, to pass, with or without modification, the following ordinary and special resolutions:

Electronic participation in the Annual General MeetingPlease 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 – Jean Tyndale-Biscoe) by 10:00 on Friday, 15 August 2014, 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 are sent through to the Company Secretary, Jean Tyndale-Biscoe at 146a Kelvin Drive, Woodmead, 2191, so as to be received by no later than 10:00 on Friday, 15 August 2014.

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 18 July 2014 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 8 August 2014. Accordingly, only shareholders who are registered in the register of members of the Company on 8 August 2014 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 28 February 2014, together with the directors’, the auditors’ and social and ethics reports thereon, be received, considered and adopted.”

Explanatory note for ordinary resolution number 1The purpose of ordinary resolution number 1 is to obtain shareholder approval for the annual financial statements presented for the year ended 28 February 2014 in terms of the Companies Act, 2008 (No. 71 of 2008) (“the Act”). The minimum percentage of voting rights that is required for this ordinary resolution to be adopted is 50% (fifty percent) of the voting rights plus 1 (one) vote to be cast on the resolution.

Ordinary resolution number 2 – Director retirement and re-election (Mr SP Tredoux)“RESOLVED THAT Mr SP Tredoux, who retires in accordance with the Company’s Memorandum of Incorporation but offers himself for re-election, be and is hereby re-elected as a director of Huge Group Limited.”

Ordinary resolution number 3 – Director retirement and re-election (Mr AD Potgieter)“RESOLVED THAT Mr AD Potgieter, who retires in accordance with the Company’s Memorandum of Incorporation but offers himself for re-election, be and is hereby re-elected as a director of Huge Group Limited.”

Explanatory note for ordinary resolution number 2 and 3 In terms of the Company’s Memorandum of Incorporation, one-third of the directors are required to retire by rotation each year. The minimum percentage of voting rights that is required for these ordinary resolutions to be adopted is 50% (fifty percent) of the voting rights plus 1 (one) vote to be cast on each resolution.

Ordinary resolution number 4 – Appointment and remuneration of Auditors“RESOLVED THAT the appointment of BDO South Africa Incorporated as auditor, with Mr G Marais as the designated audit partner, of the Company be and is hereby approved and that the Audit Committee be and is hereby authorised to determine the remuneration of the auditor.”

Explanatory note for ordinary resolution number 4BDO South Africa incorporated (BDO) has indicated their willingness to be appointed as the Company’s auditors until the next Annual General Meeting. The Audit Committee has satisfied itself as to the independence of BDO. The Audit Committee has the power in terms of the Act to approve the remuneration of the external auditor. The remuneration and non-audit fees paid to the auditors during the year ended 28 February 2014 are contained in note 28 of the Annual Financial Statements. The minimum percentage of voting rights that is required for this ordinary resolution to be adopted is 50% (fifty percent) of the voting rights plus 1 (one) vote to be cast on the resolution.


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Ordinary resolution number 5 – Appointment of Audit Committee member (Mr DR Gammie)“RESOLVED THAT Mr DR Gammie be and is hereby approved as a member of the Audit Committee.”

Ordinary resolution number 6 – Appointment of Audit Committee member (Mr AD Potgieter)

“RESOLVED THAT Mr AD Potgieter be and is hereby approved as a member of the Audit Committee.”

Ordinary resolution number 7 – Appointment of Audit Committee member (Mr SP Tredoux)

“RESOLVED THAT Mr SP Tredoux be and is hereby approved as a member of the Audit Committee.”

Explanatory note for ordinary resolution number 5 – 7:

In terms of section 94(2) of the Act shareholders are required to approve the appointment of the members of the Audit Committee of the Company. Section 94 of the Act requires that, at each Annual General Meeting, shareholders of the Company must elect an Audit Committee comprising at least three non-executive directors. The Chairman of the Board may be appointed as a member of the Audit Committee but may not be the Chairman of the Audit Committee.

The curriculum vitae of each of the persons nominated as members of the Audit Committee are set out on page 4 and 5 of the Annual Report. In terms of section 61(8)(c)(iii) of the Act shareholders are required to approve the appointment of the members of the Audit Committee by means of a simple majority of votes cast in favour of the appointment.

Ordinary resolution number 8 – 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 26 of the Integrated Report.”

Explanatory note for ordinary resolution number 8

Chapter 2 of King III dealing with boards and directors requires companies to table their remuneration policy every year 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.

Ordinary resolution number 9 – 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 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 Stock Exchange News Service (“SENS”) give full details thereof, including the effect on the net asset value and earnings per share of the Company;

NOTICE OF ANNUAL GENERAL MEETING

119

• the aggregate issue of a class of shares already in issue in any financial year shall not exceed 50% or 44 657 258 of the number of that class of shares (including securities which are compulsorily convertible into shares of that class); and

• the maximum discount at which shares may be issued is 10% of the weighted average traded price of the Company’s shares over 30 business days prior to the date that the price is agreed or determined by the directors of the Company.

Explanatory note for ordinary resolution number 9

The purpose of ordinary resolution number 9 is to place the Company’s authorised but unissued shares under the control of the directors of the Company and to permit the directors of the Company to allot, issue, grant options over or otherwise deal with those shares in the Company as and when the need may arise.

In terms of the JSE Listings Requirements, this ordinary resolution requires the approval of 75% of eligible shareholders’ votes cast in favour of the resolution.

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 securities (including ordinary shares) in the share capital of the Company from any person in accordance with the requirements of the Company’s Memorandum of Incorporation, the Companies Act and the JSE Listings Requirements, provided that:

• any such acquisition of securities (including 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 securities constituting, on a cumulative basis, 3% of the number of ordinary shares in issue and for each 3% in aggregate of the initial number acquired thereafter, in compliance with paragraph 11.27 of the JSE Listings Requirements;

• acquisitions of securities (including ordinary shares) in aggregate in any one financial year may not exceed 20% of the Company’s ordinary issued share capital, as the case may be, as at the date of passing of this special resolution number 1;

• ordinary shares may not be acquired at a price greater than 10% above the weighted average of the market value at which such ordinary shares are traded on the JSE as determined over the five business days immediately preceding the date of acquisition of such ordinary 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, as set out in section 4 of the Act, and that from the time that the test is done, there are no material changes to the financial position of the Company;

• in terms of section 48 (2)(b) of the Act, the board of a subsidiary company may determine that it will acquire shares of its holding company, but (i) not more than 10%, in aggregate, of the number of issued shares of any class of shares of a company may be held by, or for the benefit of, all of the subsidiaries of that company, taken together; and (ii) no voting rights attached to those shares may be exercised while the shares are held by the subsidiary, and it remains a subsidiary of the company whose shares it holds;


Huge Group Limited Annual Report 2014

120

• 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 securities (including ordinary 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 does not acquire any securities (including ordinary shares) during a prohibited period, as defined in the JSE 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 securities (including ordinary 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 shares, as the case may be, to use the general authority to acquire securities (including ordinary 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;

• the assets of the Company and its subsidiary companies will exceed the liabilities of the Company and its subsidiary companies after recognition and measurement in accordance with the accounting policies used in the latest AFS;

• 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 Listings Requirements, prior to the commencement of any purchase of the Company’s securities (including ordinary shares) on the open market.

The JSE Listings Requirements require, in terms of Section 11.26, the following disclosures, which appear in this Integrated Report:

• Directors and management – refer to pages 4 and 20 of the Integrated Report;

• Major shareholders – refer to note 42 of the AFS;

• Directors’ interests in securities – refer to note 10 of the Directors’ Report; and

• Share capital of the Company – refer to note 17 of the AFS.

Litigation statement

In terms of paragraph 11.26 of the JSE Listings Requirements, the directors, whose names appear on pages 4 and 5 of the Integrated 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 AFS part of the Integrated Report.

Directors’ responsibility statement

The directors, whose names appear on pages 4 and 5 of the Integrated 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 Listings Requirements.

Material changes

Other than the facts and developments reported on in the Integrated 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.

The directors are of the opinion that it would be in the best interests of the Company to extend such general authority and thereby allow the Company or any of its subsidiaries to be in a position to acquire the shares issued by the Company through the order book of the JSE, should the market conditions, tax dispensation and price justify such an action.

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 remuneration payable to the non-executive directors for the financial year commencing 1 March 2014, be approved as follows:

Chairman Other directors/Members of committees

Monthly retainer R30 000 R18 000

Meeting fees (per day):Attendance fee

R12 000 R12 000

Special Board meetings:Attendance fee

R4 000 R4 000

Explanatory note for special resolution number 2

Section 66(8) (read with section 66(9)) of the Act provides that, to the extent permitted in the Company’s MOI, the Company may pay remuneration to its directors for their services as directors provided that such remuneration may only be paid in accordance with a special resolution approved by shareholders in the previous two years. Article 6.7 of the Company’s MOI provides that the directors shall be paid such remuneration as the Company may from time to time determine in a general meeting.

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, to the extent required by the Act, the board of directors of the company may, subject to compliance with the requirements of the Company’s MOI, the Act and the Listings Requirements of the JSE, each as presently constituted and as amended from time to time, authorise the Company to provide direct or indirect financial assistance by way of loan, guarantee, the provision of security or otherwise, to any of its present or future subsidiaries and/or any other company or corporation that is or becomes related or inter-related to the Company, for any purpose or in connection with any matter, including, but not limited to, the subscription of any option, or any securities issued or to be issued by the Company or a related or inter-related company, or for the purchase of any securities of the Company or a related or inter-related company as the directors in their discretion deem fit and that the publication of such information on SENS will constitute written notice to shareholders.”

121

Explanatory note for special resolution number 3

Section 45 of the Act provides, inter alia, that, except to the extent that the MOI of a company provides otherwise, the board may authorise the company to provide direct or indirect financial assistance (which includes lending money, guaranteeing a loan or other obligation and securing any debt or other obligation) to a related or inter-related company or corporation, provided that such authorisation shall be made pursuant to a special resolution of the shareholders adopted within the previous two years, which approved such assistance either for the specific recipient or generally for a category of potential recipients and the specific recipient falls within that category.

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, First Floor, 146a Kelvin Drive, Woodmead, 2191, at 10:00 on Tuesday, 19 August 2014 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 Company Secretary, Jean Tyndale-Biscoe at First Floor, 146a Kelvin Drive, Woodmead, 2191, so as to be received by no later than 10:00 on Friday, 15 August 2014.

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 Company Secretary of the Company to be received by not later than 10:00 on Friday, 15 August 2014.

By order of the Board

Jean Michelle Tyndale-BiscoeCompany Secretary25 July 2014

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 Tuesday, 19 August 2014 in the Woody Woods Boardroom, First Floor 146a Kelvin Drive, Woodmead, 2191 (“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 and remuneration of Auditors

Ordinary resolution number 5 – Appointment of Audit Committee member (Mr DR Gammie)

Ordinary resolution number 6 – Appointment of Audit Committee member (Mr AD Potgieter)

Ordinary resolution number 7 – Appointment of Audit Committee member (Mr SP Tredoux)

Ordinary resolution number 8 – Approval of remuneration policy

Ordinary resolution number 9 – General authority to allot and issue shares for cash

Special resolution number 1 – General authority to acquire (repurchase) securities (including ordinary 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 2014

Signature

Assisted by me (where applicable)

Name Capacity Signature

HUGE GROUP LIMITED(Incorporated in the Republic of South Africa)(Registration number 2006/023587/06)(“Huge” or “the Company”)Share code: HUG ISIN: ZAE000102042

Notes to the form of proxy1. 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, 2191, South Africa, not later than 10:00 on Friday, 15 August 2014.

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; or7.2 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 Friday 15 August 2013; 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, 2191, South Africa, not later than 10:00 on Friday, 15 August 2014.

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 “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)); and10.2.3. 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)).

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