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JSE
HUG
HUG - Huge Group Limited - Abridged Prospectus
HUGE GROUP LIMITED
(formerly Vanquish Fund Managers Limited)
(Incorporated in the Republic of South Africa)
(Registration number 2006/023587/06)
Share code: HUG ISIN Code: ZAE000102042
("Huge Group" or "the company")
ABRIDGED PROSPECTUS
1. INTRODUCTION
Arcay Moela Sponsors (Proprietary) Limited are authorised to announce
that the JSE Limited ("JSE") has, subject to the attainment of the spread
of shareholders required in terms of the JSE Listings Requirements, and
subject to the minimum subscription of R125 million being received,
approved the listing of Huge Group on the Alternative Exchange ("ALTX"),
and the listing of 99 646 601 ordinary shares of R0.0001 each in Huge
Group, with effect from the commencement of trade on Wednesday, 8 August
2007 under the abbreviated name "Huge", share code "HUG" and ISIN
ZAE000102042.
2. OVERVIEW OF THE HUGE GROUP
Huge Group, through its wholly owned subsidiary TelePassport, is the
longest established least-cost-routing (LCR) provider in South Africa and
a leader in the LCR industry. It is focused on maximising service and
savings on the telecommunication systems of its clients.
TelePassport operates from offices and satellite offices in all major
regional centres including Johannesburg, Port Elizabeth, Cape Town,
Durban, Bloemfontein and Polokwane, as well as an associated company in
Namibia with offices in Windhoek and Swakopmund, making it a large and
independent telecommunications company with a significant national
footprint.
TelePassport is positioning to be South Africa`s leading managed telecoms
company, managing mainstream voice between the different carriers,
selecting appropriate routes and managing tariff alternatives to ensure
that clients get the least-cost-route for the best quality of service
("QoS").
3. RATIONALE
The main purposes of the listing on ALTX are to:
- enhance the profile and credibility of Huge Group;
- raise awareness of Huge Group in its target markets and more
generally with investors and members of the general public;
- position the Huge Group to attract and retain key human resources by
means of the implementation of a share incentive scheme in the
foreseeable future;
- obtain the necessary spread of shareholders to enable Huge Group to
be listed on the JSE;
- increase the capital base of Huge Group in order to take advantage
of future growth opportunities;
- afford the management and staff of Huge Group, selected black
economic empowerment investors, financial institutions and associates of
Huge Group the opportunity to participate directly in the equity of Huge
Group;
- to provide a means for the placement of the renounceable vendor
shares; and
- raise the necessary funding to allow the company to fund future
acquisitions.
4. PRIVATE PLACING
Number of ordinary shares offered in
terms of the private placing 50 000 000
Issue price per ordinary share (cents) 250
Total number of ordinary shares in
issue after the private placing 99 646 601
Total capital to be raised in
terms of the private placing before cash expenses R125 million
Opening date of the private
placing at 09:00 on Wednesday, 1 August 2007
Closing date of the private
placing at 17:00 on Wednesday, 1 August 2007
No offer will be made to the public in respect of the private placing.
The private placing is open to select applicants only and is not being
underwritten.
5. PROSPECTS
The African telecommunications market, and particularly the advent of
VoIP technology, represents the latest trend towards an increase in
telecommunication routing alternatives and this increases the growth
opportunity for communications services companies involved in managing
telecommunications both domestically and abroad.
It must be recognised that the historical earnings of TelePassport,
unlike other competitors, have not been adversely impacted by significant
capital infrastructure expenditure in areas like VoIP, where the uptake
has been particularly slow. TelePassport understands the importance of
VoIP but recognizes its place as another route along which voice traffic
can travel. It places far more importance on the management of this
traffic, the selection of appropriate carriers and transmission protocols
(VoIP, mobile, wireless or traditional fixed line TDM circuit switching)
and the saving of company time and expense than it does on building an
infrastructure capability so as to allow it to compete as an alternative
telecommunications provider. The strategy is therefore to remain the
leader in managing telecommunications services and spend on behalf of its
clients.
However, TelePassport does have a full VANS license and its own VANS
numbering range, and currently services wholesale based customers using
VoIP. It expects the corporate take-up of its VoIP services to be slow
but steady from the second half of 2007.
The South African voice market is categorised by minimal routing
alternatives, dominated by very few players. VoIP will add to the
routing alternatives and the company intends to select its carriers from
the premium and quality players in the industry including the likes of
Telkom, Transtel, Verizon and Internet Solutions.
The growth in TelePassport`s revenue has been consistent over the years
with a compound annual growth rate since 2002 of 23%. Organic EBITDA for
the period 2002 to 2007 generated a CAGR of 30%.
TelePassport is not an infrastructure player and does not face any
competitive infrastructural risks. Revenue generated is by nature
recurring or annuity based and the monthly annuity book has a value of
R25mn per month representing corporate clients, and this represents the
embedded/in-force/book value of the company. The company is well
positioned to increase its market share in cellular least-cost-routing
above the current 5% level. Furthermore increased subscriber numbers have
historically lead to greater margins given the economics of the industry
and as such these are expected to improve by at least 3% this year.
De-regulation has to a large extent spurred recent market consolidation
as the opportunities for and value of telecommunication service providers
becomes increasingly evident. A number of players, including
TelePassport, are entering the race to acquire critical mass in
customers. As such TelePassport has formulated an advanced acquisition
strategy and intends making a number of strategic acquisitions in the
next three years. This acquisition strategy is driven by an effort to
gain critical mass, to entrench its market position and to provide entry
into complementary market segments involving the "triple play" services
that have as their focus entertainment, information and communications.
6. DIRECTORS
Name Age Occupation Business Address
Emmanuel Fentse Lediga 40 Non-Executive 6-10 Riviera Road,
Chairman Houghton,
2198
Brian Alexander McQueen 63 Non-executive 27 Regent`s Hill,
Director 361 Fifth Road,
Halfway Gardens,
Midrand,
1685
Anton Daniel Potgieter 38 Chief Executive Block 1,
Officer Woodlands Drive
Office Park,
Woodlands Drive,
Woodmead,
Johannesburg,
Gauteng,
2191
James Charles Herbst 36 Financial Director 56 Marula Street,
Dowerglen Ext 5,
Edenvale,
Gauteng,
1610
Vincent Mokhele Mokholo 34 Executive Director Block 1,
Woodlands Drive
Office Park,
Woodlands Drive,
Woodmead,
Johannesburg,
Gauteng,
2191
Mogamad Rhamees Nordien 31 Executive Director Doncaster Office
Park,
Punters Way,
Kenilworth,
Western Cape,
7702
All directors are South African citizens.
7. FINANCIAL INFORMATION
Set out below is an extract from the historic income statement of Huge
Group for the year ended 28 February 2007, and the forecast income
statement for the financial periods ending 29 February 2008 and 28
February 2009, the preparation of which is the responsibility of the
directors of Huge Group. The forecast information should be read in
conjunction with the assumptions and the independent reporting
accountants` report on such forecast financial information, as set out in
the prospectus to be made available to all participants in the private
placing and available electronically on TelePassport`s website at
www.telepassport.co.za:
Feb 2007 Feb 2008 Feb 2009
R`000 R`000 R`000
Revenue 280 009 297 690 334 114
Gross Profit 54 424 58 461 65 518
Other income 2 587 3 575 4 774
Interest received 1 082 3 848 8 098
Gross income 58 093 65 884 78 390
Operating expenses (41 670) (42 840) (46 790)
Finance costs (1 124) - -
Profit before tax 15 299 23 044 31 600
Taxation - normal (4 249) (6 683) (9 164)
Taxation - stc (1 200) - -
Net profit for the year9 850 16 361 22 436
The 2008 profit forecast is based on the actual historical performance of
the business of TelePassport (Proprietary) Limited for the financial year
ending on 28 Feb 2007.
It is assumed that total revenue will increase by 6.3% in the year to Feb
2008 and by 12.2% in the year to Feb 2009 based on the following factors:
- The extension of Telkom`s monopoly will not have a material adverse
affect on the revenue and operating results;
- The effect of deregulation in the telecommunications industry
and the introduction of new competitors (example, the Second Network
Operator) and new technologies (example, WiFi, Wimax and VOIP) will not
have a material adverse affect on the revenue and operating results;
- The directors have not taken into account any revenue generation
from future product and service launches nor any projects or
relationships that are currently in the process of being finalized;
- Total gross profit margins will remain constant around 19.6% in the
year to Feb 2008 and the year to Feb 2009 based on the following factors:
- No significant changes will be made to the connection incentive
bonus received from the cellular operators, CellC, MTN or Vodacom for new
cellular telephone lines that have been contracted for in the name of the
company or its subsidiary;
- The arbitrage between the cost of landline telephone calls
originating from the fixed line network of Telkom and terminating on the
cellular GSM network of either CellC, MTN and Vodacom, which are charged
at higher rates and are thus more costly than cellular or mobile
telephone calls originating from one cellular GSM network and terminating
either on the same cellular GSM network or another cellular GSM network
remain the same;
- Other income which includes the performance of international
operations and more particular the equity accounted investment of
TelePassport Namibia (which was in a start up phase during the financial
year ending on 28 Feb 2007), administration and management fees received
from certain third party products sold, hardware rental and sales and
sundry income is expected to double for the year ending 28 Feb 2008 and
increase by 34% for the financial year ending 28 Feb 2009;
- Interest received at 8% per annum has been forecast to increase as a
result of an increase in cash balances generated by the increased
profitability and improvement in working capital management (with its
concomitant reduction in trade receivables). The cash received from the
private placing is expected to be included in the cash balance from 1
September 2007;
- An inflationary increase in overhead expenditure of approximately 8%
and an inflationary increase in salary expenditure of 6.25% are expected
to be offset by structural reductions in overhead expenditure resulting
in an overall increase in operating expenses of 2.8% for the year to Feb
2008;
- An inflationary increase in overhead expenditure of approximately 8%
and an inflationary increase in salary expenditure of 6.25% is expected
to be increased by certain structural additions to overhead expenditure
resulting in an overall increase in operating expenses of 9.2% for the
year to Feb 2009;
- An effective tax rate of 29% has been used; and
8. COPIES OF THE PROSPECTUS
This abridged prospectus is intended as a summary of the of the full
prospectus which has been prepared and issued in terms of the JSE
Listings Requirements, and which will be registered by the Registrar of
Companies on 1 August 2007. The full prospectus will be posted to all
those participants who have been invited to participate in the private
placing, and an electronic version may be downloaded off the website of
TelePassport - www.telepassport.co.za.
Copies of the full prospectus shall also be available, in English, from
the registered office of Huge Group Limited, Block 1, Woodlands Drive
Office Park, Woodlands Drive, Woodmead, Johannesburg, the offices of the
transfer secretaries, Computershare Investor Services 2004 (Pty) Limited,
70 Marshall Street, Johannesburg, or the offices of the Designated
Advisor, Arcay Moela Sponsors (Pty) Limited, 3 Anerley Road, Parktown,
Johannesburg, during normal business hours from Wednesday, 1 August 2007
until Friday, 31 August 2007.
Johannesburg
1 August 2007
Corporate Advisor
Manhattan Equity Corporate Finance (Pty) Limited
Designated Advisor
Arcay Moela Sponsors (Pty) Limited
Reporting accountants to Huge Group Limited
Howarth Leveton Boner
Date: 01/08/2007 09:56:31 Produced by the JSE SENS Department. |
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