AnnuAl RepoRt 2013 · 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

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AnnuAl RepoRt 2013

Huge Group Limited Annual Report 2013 I

In these Consolidated 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 meanings stated opposite them in the second column:

“AFS” Consolidated Annual Financial Statements in the case of the Group, and 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;“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 Companies Act” the Companies Act, No. 71 of 2008, as amended;“EBIT” earnings before interest and taxation;“Eyeballs” Eyeballs Mobile Advertising Proprietary Limited, registration number 2007/004818/07, a 77% held subsidiary company of Huge;“FCR” Fixed Cellular Routing;“FirstRand Bank” FirstRand Bank Limited, registration number 1966/010753/06, 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, a 50% held joint venture company of Huge Telecom;“Group” Huge and its subsidiary and associate companies;“Huge Cellular” Huge Cellular Proprietary Limited, registration number 2008/004068/07, a wholly-owned subsidiary company of Huge Telecom;“Huge” or “the Company” Huge Group Limited, registration number 2006/023587/06, a company of which the shares are listed on AltX;“Huge Mobile” Huge Mobile Proprietary Limited (formerly CentraCell Proprietary Limited), registration number 2002/022642/07, a wholly-owned subsidiary company of Huge;“Huge Software” Huge Software Proprietary Limited (formerly Huge Media Proprietary Limited), registration number 2008/006066/07, a wholly-owned subsidiary company of Huge;“Huge Telecom” Huge Telecom Proprietary Limited, registration number 1993/003902/07, a wholly-owned subsidiary 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;“Le Gacy” Le Gacy Telecoms (FRA) Proprietary Limited, registration number 2007/033510/07, a 50.3% held subsidiary company of Huge Telecom;“the LR” the Listings Requirements of the JSE;“MNOs” Mobile Network Operators;“MTNSP” MTN Service Provider Proprietary Limited, registration number 1993/002648/07;“MVS” Managed Voice Solutions Proprietary Limited, registration number 2008/006162/07, a 33.3% held joint venture company of Huge Telecom;“Nedbank” Nedbank Limited, registration number 1966/010630/06;“Pacific Breeze” Pacific Breeze Trading 417 Proprietary Limited, registration number 2006/008999/07;“SARS” the South African Revenue Service;“SSFs” Single Stock Futures;“STC” Secondary Tax on Companies;“Telkom” Telkom Limited, registration number 1991/005476/30;“VAT” Value Added Tax;“Vodacom” Vodacom Service Provider Company Proprietary Limited, registration number 1991/001471/07;“VoIP” Voice over Internet Protocol; and“Watermark” Watermark Securities Proprietary Limited, registration number 1999/010690/07.

DeFInItIonS

We shall build a group that excels in the creation of client, employee and stakeholder value, led by a huge brand and service ethic.

Our vision

III | Financial and operational highlights

IV | Corporate overview

V | Segmental structure

VI | Board of directors

VIII | Chairman’s letter

XIX | CEO’s report

XXV | Sustainability report

XXVI | Group annual financial statements

XXVII | Notice of annual general meeting of the shareholders of the company

XXVIII | Form of proxy

tAble oF contentS

Huge Group Limited Annual Report 2013 II

Huge Group Limited Annual Report 2013 III

FInAncIAl AnD opeRAtIonAl hIghlIghtS

• 53% increase in gross profit margins from 19.4% to 29.7%

• Telecom Operating Segment increases operating profit before tax 160% from R5.8 million to R15.1 million

• Telecom Operating Segment generates operating profit margins of 5.7%

• Cash generated from operations increased 138% from R7.9 million to R18.8 million

• Impact of amortisation and impairment of intangible assets (including the impairment of the Eyeballs Technology to zero) on earnings amounted to R13.8 million

• Impact of reduction in deferred income tax assets on earnings amounted to R3.8 million

• Impact of derivative instruments on earnings amounted to R6 million

Huge Group Board

Left to right: James Herbst, Dennis Gammie, Vincent Mokholo, Steve Tredoux, Dave Deetlefs, Anton Potgieter.

Huge Group Limited Annual Report 2013 IV

Huge Group Limited is an investment holding company listed on the AltX of the JSE. The group of companies comprising Huge are 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-end of its technology on the

servers of various customers, particularly mobile network operators operating throughout

the world.

coRpoRAte oveRvIew

Huge Group Limited Annual Report 2013 V

SegmentAl StRuctuRe

Owns 100% Owns 100% Owns 100% Owns 77%

software

Owns 50% Owns 50.3% Owns 100% Owns 50.2%

Huge Group Limited Annual Report 2013 VI

Vincent Mokhele Mokholo (39) – Executive Chairman, BSc

Appointed: 2 July 2007

Vincent has worked in the telecommunications industry for the last 17 years. After graduating in 1995, he joined GSM Cellular where he applied himself across the different business disciplines within the company, developing his professional skills and finishing his tenure as the Corporate Account Manager. Vincent joined TelePassport in 1999 to focus on business growth. Vincent was instrumental in developing TelePassport into a successful and growing business. At the helm of a consortium he played a major role in tailoring a BBBEE transaction for TelePassport, which culminated in Mojaho Trading acquiring 30% of the company. He assumed the role of Client Services Director when TelePassport and CentraCell formed Huge Telecom, and was responsible for bedding down the operations and service deliverables of the combined entity. Vincent was appointed to the position of Product and Business Development Director in January 2009, and was involved in rejuvenated the Group’s product portfolio, with the continual introduction of new products. Huge Telecom acquired a controlling shareholding in Ambient Mobile in January 2011, which has resulted in Vincent’s appointment as the head of Ambient Mobile Proprietary Limited. Vincent was instrumental in the acquisition of Ambient, having identified the potential growth of mobile messaging not only in South Africa but in the rest of the African continent as well. He has also completed a mini MBA (Telecoms) with Informa Telecom academy, based in the United Kingdom.

James Charles Herbst (42) – Chief Executive Officer, BComm, BAcc, CA (SA), Chartered Financial Analyst

Appointed: 1 September 2006

James is a CA with sound experience in corporate finance, corporate law, investment banking and investment management. After completing his articles with Coopers & Lybrand and the Chartered Financial Analyst programme, James worked for Fleming Martin Private Asset Management where he managed full discretionary funds. He left in 2001 to start a private equity business that later culminated in the listing of Level 4 IT Services with its subsequent acquisition of DataPro (now Vox Telecom). Having completed his service contract with DataPro, James went on to pursue corporate finance and deal-making with the launch of WRH Corporate Advisors. In July 2007, they acted as corporate advisors to TelePassport, which was reverse-listed into Huge. Since his appointment as CEO, James has been instrumental in integrating Huge’s two principal telecommunications businesses, which have been combined to form Huge Telecom.

David (“Dave”) Deetlefs (56) – Group Financial Director / Chief Operating Officer, BComm, BAcc, CA (SA)

Appointed: 1 October 2012

Dave 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. Dave joined Huge Telecom (Proprietary) Limited in a consulting capacity in November 2011 and was appointed as Managing Director: Huge Business Support with effect from 1 March 2012. In this role he was responsible for the management of the Company’s Commercial and Operations functions. On 1 October 2012, he was appointed Group Financial Director, and has subsequently assumed responsibility for all operational functions in his capacity as Chief Operating Officer. Dave sits on the Social and Ethics Committee.

Stephen (“Steve”) Peter Tredoux (53) – Lead Independent Non-Executive Director

Appointed: 26 March 2008

Steve started his working career as an accountant but moved to general management where he worked in the property management and manufacturing industries. He subsequently joined the information technology sector where he was employed by National Data Systems as account director addressing all commercial and support issues for Nedbank. In 1995 Steve joined MTN working there with the service providers, as well as investigating new routes to market, new product sets, and new ways of communicating with customers. When MTN acquired M-Tel, Steve was appointed in an executive sales and advertising capacity. He has considerable experience in sales distribution but is also a master of marketing and product development. Steve is a member of the Combined Audit and Risk Committee, a member of the Remuneration Committee and a member of the Social and Ethics Committee.

Dennis Robert Gammie (59) – Independent Non-Executive Director, CA (SA)

Appointed: 28 June 2012

Dennis 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 Risk Committee, and acting Managing Director of an Aveng Group subsidiary company for a time. Dennis is Chairman of the Combined Audit and Risk Committee.

boARD oF DIRectoRS

Huge Group Limited Annual Report 2013 VII

Anton Daniel Potgieter (44) – Non-Executive Director, BBusSc (Hons – Information Systems)

Appointed: 2 July 2007Anton has eighteen years of telecommunications experience in the Southern African market, with extensive experience in all facets of business within an industry which is ever-changing. He started an IT Company in 1991, and then founded TelePassport in 1993, which was focused initially on international call-back. In 1997, TelePassport extended its focus into GSM-based least cost routing. TelePassport’s annual revenue grew to R350 million by 2006. Anton listed TelePassport as Huge in 2007 and fulfilled the role of Chief Executive Officer before being appointed as its Executive Chairman in 2008. In April 2011, Anton resigned as an employee of Huge Telecom and was appointed as a non-executive director on the Group’s board. Anton is a member of the Remuneration Committee.

Kenneth (“Ken”) Delroy Jarvis (55) – Lead Independent Non-Executive Director

Appointed: 1 September 2008 Resigned: 7 June 2012

Ken previously held the position of CIO at the South African Revenue Service (“SARS”) and was responsible for the turnaround of SARS from 2002 to 2006. He started his working career in the mid-1970s and spent a decade with IBM. During his career he worked for a number of well-known companies, including Nedacom, Momentum Life, Nedcor Bank, Amplats, MultiChoice and SARS, and his experience includes massive project rollouts, consolidation exercises and transformational initiatives. Ken currently runs his own consulting company focusing on executive mentoring and coaching, as well as IT strategy and project trouble shooting. He is also involved at a shareholder level in a number of start-up IT companies. Ken is a member of the Combined Audit and Risk Committee and Chairman of the Combined Remuneration and Nomination Committee.

Brian Alexander McQueen (68) – Independent Non-Executive Director

Appointed: 24 July 2007 Resigned: 28 June 2012

Brian McQueen has forty years of experience in sales and general management, gained primarily in the gas and telecommunications industries, and in particular with PABX telephony, radio paging and GSM cellular companies. Brian started his career as a management trainee at Afrox in 1964, and progressed through the ranks to national contracts manager by 1985. He then moved to Infotech in the role of software development manager until 1987, and fulfilled several roles at STC Business Communications (Alcatel) from 1987 to 1995. In 1995, he joined Autopage Paging, where he was ultimately appointed as managing director of Supercall, a subsidiary of Altech, in 2002. Brian is the Chairman of the Combined Audit and Risk Committee and a member of the Combined Remuneration and Nomination Committee.

Neil Wensley (49) – Group Financial Director, BCompt (Hons)

Appointed: 1 August 2011 Resigned 30 September 2012

Neil has a BCompt (Hons) degree and after completing accounting articles in Durban with David Strachan & Tayler, he worked in the financial field in textiles (with Mooi River Textiles) and for various listed and private manufacturing groups in the engineering industry (with the Haggie Group). Neil has a vast experience: as a financial manager, group internal auditor, corporate financial manager, financial director and financial executive. Neil also has private company board experience through his previous employer Maksal Tubes which acquired the operations of the Maksal division of a Haggie Group company in a 1998 management buy-out with Gold Circle Metals and Rand Merchant Ventures. Neil was appointed to the board of Maksal, and gained further experience as a result of his involvement in the buy-out of the Rand Merchant Ventures share of the company in a second management buy-out that took place in 2003. Neil brings with him a “hands-on” range of experience.

Michael (“Mike”) Ronald Beamish (44) – Non-Executive Director

Appointed: 8 December 2009 Resigned: 20 May 2013

Mike began his career as a Derivatives Trader with HSBC Securities, holding various contract positions as an analyst, consultant and systems implementer. After two years, he took over the management of the firm’s proprietary trading book. He spent a further four years in this position and was promoted to Associate Director. In 2003, Mike started Praesidium Capital Management Proprietary Ltd (“Praesidium”), an asset management company which has three managing partners. Praesidium is a shareholder of Huge Group and Mike is a material shareholder of Huge. Mike is a member of the Combined Audit and Risk Committee, and Chairman of the Remuneration Committee.

boARD oF DIRectoRS

Huge Group Limited Annual Report 2013 VIII

It is fitting then that my Chairman’s Letter at 28 February 2013 reflects on the performance of the group over the last five full years.

“

“

Introduction28 February 2013 marks five full years of Huge Group Limited being listed on the Alternative Exchange

of the JSE. Huge Group was granted a listing and its shares opened for trading on the JSE at 9 am on

7 August 2007. 28 February 2008 marked its first year of being listed, but the results for that year

included only seven months of trading. It is fitting then that my Chairman’s Letter at 28 February 2013

reflects on the performance of the group over the last five full years.

chAIRmAn’S letteR

Financial Performance Highlights – Five Year Review

2013 2012 2011 2010 2009

Telecommunications revenue (in millions)

R266.3 R388.9 R510.1 R516.0 R554.0

Connection incentives bonuses revenue (in millions)

- - R13.7 R57.6 R54.5

Total revenue R266.3 R388.9 R523.8 R573.6 R608.5

Gross profit including connection incentive bonuses (in millions)

R79.1 R74.7 R89.7 R119.5 R113.1

Gross profit excluding connection incentive bonuses (in millions)

R79.1 R74.7 R76.0 R61.9 R58.6

Gross profit margin including connection incentive bonuses as a percentage of revenue including connection incentive bonuses

29.7% 19.2% 17.1% 20.8% 18.6%

Vincent MokholoExecutive Chairman

Huge Group Limited Annual Report 2013 IX

chAIRmAn’S letteR contInueD

2013 2012 2011 2010 2009

Gross profit margin including connection incentive bonuses as a percentage of revenue excluding connection incentive bonuses

29.7% 19.2% 17.6% 23.2% 20.4%

Gross profit margin excluding connection incentive bonuses as a percentage of revenue excluding connection incentive bonuses

29.7% 19.2% 14.9% 12.0% 10.6%

Telecommunications operating costs (in millions)

(R66.4) (R73.6) (R96.1) (R110.3) (R91.3)

Media operating costs (R13.9) (R3.9) (R17.5) (R6.8) -

Total operating costs (R80.3) (R77.7) (R113.6) (R117.1) (R91.3)

Operating profit (loss) including Media Segment

(R1.3) (R2.9) (R23.9) R3.3 R8.1

Operating profit (loss) of Telecommunications Segment (excluding Media Segment)

R12.6 R0.6 (R6.4) R10.1 R8.1

Much has happened in the last five years. While this is my first year as Chairman of the board of directors of Huge Group, and while I am the fourth chairperson to hold this office, I have been involved with the Group since 1 July 1999, when I took up employment with TelePassport (Pty) Limited - what is today Huge Group’s principal trading operation. TelePassport was renamed Huge Telecom and is the reason for Huge Group’s existence.

As you will note from the table above, the Telecommunications Segment of the Group has been shown separately from the Media Segment. The intangible assets relating to the Group’s investment in Eyeballs Mobile Advertising (Pty) Limited have been written down to zero.

Huge Telecom commenced operations on 13 July 1993 from lowly beginnings as “TelePassport”, re-selling highly technical international call-back services out of a small office in Mowbray, Cape Town

– bootstrapped by the founders’ family, staffed by a group of passionate youngsters (average age 22), and perpetually under fire in the press from Telkom for its alleged “illegal activities”.

The world involving the transmission of voice, messaging, data and video has been labelled – for want of a better description – “telecommunications”. One can argue that the word “communications” better describes this world and that only voice is encapsulated in the word “telecommunications” but this term is now widely accepted as including data, and more recently, messaging and video. 2013 marks the end of two decades of telecommunications as we know it today. 1993 saw the first commercial activity on the Internet and in the same year mobile telephony was born in South Africa. Phenomenal growth and change – experienced over this period of time to the surprise of many – has come to be expected in telecommunications. Business plans that look forward longer than three years become obsolete before their time.

Huge Group Limited Annual Report 2013 X


TelePassport (the future Huge Telecom) launches as an International LCR provider.

TelePassport adds fixed-GSM, least cost routing to its now profitable but slow growing International LCR business; sales immediately take off.

Cell C is licenced.

International Least Cost Routing (LCR, basically automated international call-back) is launched by the private sector to

arbitrage the price of an outbound international call from South Africa with an inbound international call to South Africa.

The Telecommunications Act No. 103 of 1996 is promulgated.

The South African Telecommunications Regulatory Authority (SATRA) is replaced by the Independent Communications Authority of South Africa (ICASA) by an Act of Parliament.

Telkom is listed on the JSE.

1993

1993

1993

1997

2000

1993

1993

1996

2000

2003

Vodacom (in which Telkom and Vodafone would equally share) and MTN are licenced.

Prior to 1993 the department of Posts and Telecommunication is converted into two commercial, but state owned, entities: the Post Office and Telkom.

The commercial Internet is launched in South Africa.

Voice over Internet Protocol (VoIP) by Value Added Network Service (VANS) providers is legalised by the Department of Communications (DOC).

2004

Wireless Business Services (WBS) is licenced to offer wireless services in the cellular frequency band.

2004

Let us look at the changes that have taken place over the last twenty years:

Huge Group Limited Annual Report 2013 XI


The Telecommunications Act No. 103 of 1996 is replaced with the Electronic Communications Act No. 36 of 2005.

The second fixed-line network operator, Neotel, is licenced.

Huge Group lists on the JSE’s Alternative Exchange and acquires TelePassport – renaming it Huge Telecom.

Huge Group acquires CentraCell (Pty) Limited and commences merging the operations of CentraCell with

Huge Telecom.

Huge Telecom converts its VANS licence to two licences: an iECNS licence and an iECS licence.

Cell C initiate mobile price war.

TelePassport is awarded a Value Added Network Services (VANS) licence.

Neotel commences commercial operations.

Altech wins a court battle against ICASA, arguing that VANS can build their own telecommunications networks independently of other licenced network infrastructure operators.

Huge Telecom attempts to acquire iTalk Cellular (Pty) Limited.

MTN and Vodacom cease paying connection incentive bonuses (or terminal equipment subsidies as they are sometimes called) to LCR providers.

Sentech is licenced to offer international access and multimedia services.

2004

2005

2006

2008

2008

2010

2005

2005

2007

2008

2009

2012

Huge Group Limited Annual Report 2013 XII


Regulatory MattersThe South African telecommunications market was not very competitive until 1994. In fact, everything was state-owned – the postal service, telephone services and television. The state held a monopoly over all these services and had it not been for the licencing of Vodacom and MTN, the competition which we see today may have taken a lot longer to materialise.

However, we could have been much further down the road.

The South African government’s interventions since 1994 have often been too slow and too late for the purpose of truly bringing about the liberalisation that was envisaged. It took several years and the acquisition of over 10 million subscribers before Cell C was awarded a licence. This put Cell C at a significant disadvantage and diminished competition. The second fixed-line network operator was also delayed. Government’s policies continue to achieve very little, other than fortifying the wildly successful cartel created with the involvement of South Africa’s two dominant mobile network operators. They have also done very little to break down the monopoly that Telkom has enjoyed in the fixed-line market for so long.

Even more change - at an even faster pace – is needed if we are to enjoy the benefits that competition in telecommunications can bring.

Huge Telecom (Pty) LimitedIt is in this environment that Huge Telecom has chosen to compete. Its history, and more particularly the last five years, must therefore be assessed in light of the landscape with which it has been faced. Also, telecommunications in South Africa is no longer in its infancy and five years is now a very long time. However, profit margins are still high.

Huge Telecom, as TelePassport, started its business providing International LCR – that was 1993. While Vodacom and MTN were given licences to operate as mobile networks in 1993, the broadening of TelePassport’s services and the selling of Domestic LCR happened only four years later.

International LCR, which was based on a call-back protocol, was – as a business – wholesale in nature, while Domestic LCR was retail based. Domestic LCR involved the purchase of retail subscription contracts from the mobile network operators (MNOs) and the onward sale, at the same rates, to corporate enterprise customers using fixed cellular terminals to provide a mobile to mobile on-the-network (or on-net) route for a telephone call.

International LCR sought to reduce costs to corporate enterprise customers by substituting a more expensive outbound international telephone call with a cheaper inbound international telephone call – passing a percentage of the saving on to the corporate customer. Domestic LCR, on the other hand, sought to reduce costs to enterprise customers by substituting more expensive fixed-line (Telkom) to mobile-cellular (Vodacom and MTN) telephone calls with cheaper fixed-cellular to mobile-cellular telephone calls. This was really the start of LCR –

While ICT (information, communication and technology) remains high on the agenda of policy makers, more must be done to foster competition so that improvements in the delivery of basic services like education, health, water and electricity can be achieved.

Huge Group Limited Annual Report 2013 XIII


least cost or lowest cost routing. The retail price arbitrage between a Telkom-to-Vodacom telephone call and a Vodacom-to-Vodacom telephone call – as an example – was 40% and this arbitrage could be passed on to customers. The sale was easy – use LCR and save 40%. The savings concept was born.

Things stayed the same for many years, even with the launch of Cell C. The cost of a Telkom-to-Cell C call was as expensive as any other mobile-destined telephone call made from Telkom. By that time TelePassport had grown and the commissions it was earning from the MNOs to provide these services had increased. The sale remained easy and the profits and cash-flow rolled in. Little did we know that this could all unravel. The business model was never questioned – the money was just too good. With commissions approaching 18% and connection incentive bonuses averaging R2 000 a connection, the margins were huge.

In 2007 TelePassport was a significant customer of each of the MNOs. With 18 000 SIM cards, it had purchasing power. But the market for LCR operators was starting to consolidate and it needed to increase its purchasing power in order to compete. It had to do the same, that is – consolidate – and so a listing on the JSE was important. As it happened Huge Telecom, via Huge Group, listed on the JSE – on 7 August 2007.

It had increased its purchasing power with the acquisition of CentraCell. Adding CentraCell’s 14 000 SIM cards to the 18 000 it already had, Huge Telecom was able to increase its commissions by 4% to 22% and its connection incentive bonuses from R2 000 to R3 750. It had achieved what it set out to do. With annual annuity revenue of R609 million for FY09 it generated extra profit of about R24 million from playing its purchasing power card.

At the time the combined Vox Telecom Limited (being Dial Electronics CC trading as Dial Telecoms, Orion Telecom (Pty) Limited, Definity Telecommunication (Pty) Ltd, and Storm Telecom (Pty) Ltd) and Nashua Mobile (a division of Reunert Limited), dominated the LCR industry, while the combined Huge Telecom (being TelePassport and CentraCell) just edged out Altech Autopage Cellular (Pty) Limited (a subsidiary company of Allied Technologies Limited (Altech)) as the third largest LCR operator. Other LCR operators at the time included TeleMasters Holdings Limited and Du Pont Telecom (Pty) Limited.

Huge Group’s maiden set of results were solid. So too were the results for FY09. Huge Telecom was an LCR force with which to be reckoned.

But the winds of change were starting to blow.

The debate about whether or not it was legal for VANS providers to self-provide was gathering momentum. On 29 August 2008 Altech won its High Court application in which the court ruled that VANS could self-provide and that their VANS licences would automatically be converted to iECNS and iECS licences.

This paved the way for new competitors to enter the market. In 2008, the new entrants that were arriving were the VoIP operators. ECN Telecommunications (Pty) Limited and Saicom Voice Services (Pty) Limited entered the market armed with Voice over Internet

By the middle of 2008, Huge Telecom was the third largest of four dominant companies competing in the LCR industry – an industry that, measured by revenue, was R4 billion in size.

Huge Group Limited Annual Report 2013 XIV


Protocol skills and launched a massive onslaught against the established LCR operators. They started combining the use of VoIP technology with LCR technology, moving the market from on-site SIM termination (Premicells) to off-site SIM termination (SIM farms). By establishing point-to-point VoIP connections using Telkom’s legacy infrastructure – their Diginet and ADSL offerings – these new entrants substantially reduced the breakage costs associated with not making optimum use of the free value or minutes attached to each retail mobile subscription package. Added to this, Altech had paved the way for ECN and Saicom to benefit from bilateral inbound termination rate revenues. The combination was powerful. ECN and Saicom started reducing prices below the then current retail rates. The margin squeeze was coming.

As if the competition wasn’t enough for Huge Telecom, the regulatory environment started changing as well – and the forces of change supported this offering called VoIP. There was talk of lowering termination rates – the rates the MNOs were charging each other, and Telkom, to terminate a call on their respective networks. With lower termination rates the road, it was thought, would be paved for Telkom to lower its call charges to mobile destinations. With the termination revenues of the mobile operators falling and the price of on-net mobile telephone calls being expected to fall at a slower rate, the end of LCR seemed near. The arbitrage, it was said, was disappearing and so too was LCR. VoIP was seen as the saviour – a knight in shining armour.

The hype gathered momentum and the early adopters jumped in. Huge Telecom lost more clients – unfairly so. There was nothing wrong with its technology. The technology advantages of wireless, GSM-based, fixed-cellular last-mile connectivity services were apparent but the commercial models made the provision thereof at the right price a pipe dream. It was becoming difficult to compete.

Termination rates for a peak mobile destined telephone call dropped for the first time on 1 March 2010, from 125 cents to 89 cents per minute. Telkom responded on 1 August 2010, dropping its published rate for a peak mobile destined telephone call from 165.44 cents per minute, billed in increments of 60/30 seconds (being an effective rate per minute from 182 cents), to 129.44 cents per minute (being an effective rate of 146 cents per minute) – the arbitrage was starting to disappear. At prices of 118 cents per minute being offered by Huge Telecom, the percentage saving which it could offer customers dropped from 40% to 20%. The VoIP operators lowered prices further. Revenue was holding but the storm was getting nearer. In any event, revenue for FY11 fell R5.9 million from R516 million to R510.1 million.

The weakness of the commercial business model started showing – the problem was that it was retail based and not wholesale based. A strategy to combat the competitive attacks was needed.

Internet Solutions, who had entered the market in 2009, was, by 2010, also starting to make its presence felt. Huge Telecom’s revenues started coming under pressure and sales were becoming more difficult to make. The competition was bringing their presence to bear.

The scramble was on. The questions were being asked – what next? What do we do?

Few commentators understood that this VoIP was simply fixed-line, last-mile connectivity using Telkom.

Huge Group Limited Annual Report 2013 XV


And so VoIP – by default – became the most logically available substitute for LCR and a purported viable alternative to Telkom. The LCR operators started flocking to VoIP. Vox Telecom led the pack, followed by Altech and then Nashua. Huge Telecom stood alone in its continued belief in a wireless, GSM-based, fixed-cellular, last-mile. Because to Huge Telecom this VoIP was not sustainable as a business model, it decided to ask some questions:

1. Where was the money? At today’s valuations MTN has a market capitalisation of about R327 billion (13 May 2013), it had cash on the balance sheet at the end of 2012 of R25 billion, and its capex commitment to its South African network for 2013, is a not insignificant R5.6 billion. Vodacom’s metrics are not dissimilar – a market capitalisation of R165 billion (13 May 2013) and a three year capex commitment of R6 billion per year. Although there was some guesswork (like what would happen to Telkom’s stake in Vodacom), the observations were not very different in 2010 to what they are today – so what about Telkom’s market capitalisation? At an enterprise value of R6.7 billion (13 May 2013), it is crystal clear that the money is in mobile! Huge Telecom decided that this was one good reason to back wireless, GSM-based, fixed-cellular, last-mile connectivity services as opposed to fixed-line, last-mile connectivity using Telkom’s infrastructure.

2. With whom will we have to compete in the future given falling termination rates? It was clear at the time that it would be Telkom with whom Huge Telecom would have to compete given a falling termination rate market. So the question was asked as to why anyone would use Telkom to supply the last mile. Huge Telecom correctly determined that it would be foolhardy to use Telkom’s last mile to compete with Telkom when it would be Telkom from whom you would

be taking supply. It was better for this reason as well to use the wireless, GSM-based, fixed- cellular last-mile connectivity services of the MNOs.

3. Who are the lowest cost producers of minutes and megabytes in the industry? 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 was again clear that because Vodacom and MTN’s subscriber bases were the largest, they controlled more of the termination market for voice and data, and as such they were the lowest cost producers in the country. Cell C was clearly third and Telkom was a distant fourth. It seemed crazy for Huge Telecom to build its own network (like ECN, Saicom and Internet Solutions) if it would never be able to drive down its costs of manufacture to the levels of Vodacom, MTN and Cell C. It would be cheaper to buy wholesale access from one of the MNOs.

The strategy seemed simple – procure wholesale access to the networks of the MNOs.

However, matters were made worse for Huge Telecom in 2010. In July, Vodacom and MTN ceased paying connection incentive bonuses. This was devastating for Huge Telecom. Its connection incentives bonuses, which had averaged R55 million per year for FY09 and FY10, represented 49% of gross profit, which had averaged R115 million over the same period. When these payments were ceased, Huge Telecom had only earned R13 million of the R55 million it expected to earn for FY11. The impact was dramatic – Huge Telecom started bleeding cash. Its overhead structure was very high and its business model, which was retail based, was not flexible to the regulatory changes.

Huge Group Limited Annual Report 2013 XVI


Operating profits for Huge Telecom (including CentraCell) of R23 million in FY08, R25 million in FY09 and R6 million in FY10 turned into operating losses of R5 million for FY11.

On 1 March 2011, at the start of FY12, the termination rates for a peak mobile destined telephone call dropped again, this time by 16 cents, from 89 cents per minute, to 73 cents per minute. Telkom responded again, dropping its retail rate for peak mobile destined telephone calls in August 2011 by 7 cents to 123 cents, billed in increments of 60/30 seconds (being an effective rate of 139 cents). But this time it was prepared to offer discounts ranging from 27% (being a published rate of 89 cents and an effective rate of 113 cents per minute) to 30% (being a published rate of 85 cents and an effective rate of 108 cents per minute). The implied saving had disappeared. The VoIP operators also responded, offering even lower rates. Revenues could no longer stand up to the onslaught – churn was significant. Revenue for FY12 dropped 24% from R510 million to R384 million.

With little runway left, Huge Telecom persisted in trying to secure wholesale access to the infrastructure of the MNOs. In the meantime, overheads were cut again.

It was now possible to combat the revenue degradation of FY12.

However, Telkom then upped the ante, dropping its rates drastically in the upper segment of the market. During September and October 2011, Huge Telecom lost 12 million minutes per month. Some of its premier customers – African Bank, Foschini, Netcare, Life Healthcare and Mediclinic, to name but a few – moved their LCR services to Telkom. Huge Telecom’s annual revenue fell 25% from R491 million during FY11 to R367 million during FY12. The gains made by restructuring the business were offset by the losses to revenue – the move to wholesale supply coming a little late.

On 1 March 2012, at the start of FY13, the termination rates for a peak mobile destined telephone call dropped yet again, this time from 73 cents per minute to 56 cents per minute. The benefits to Huge Telecom were immediate even though it had only been able to convert 25% of its base to its wholesale supplier arrangement. Telkom responded as it did in the previous year, dropping its published rates on 1 August 2012 by half the drop in the mobile termination rate. Its new published rate was set at 114 cents, billed in increments of 60/30 seconds (being an effective rate of 131 cents billed per minute), which after its maximum discount of 30% equates to 92 cents per minute.

However, the tail end of the 2012/2013 competitive onslaught was felt this year. The increased profitability and cash flow enjoyed in the first five months of FY13 was offset by lower revenues in the last seven months. Revenue fell again, this time by 30% - from R384 million to R266 million. However, Huge Telecom raised its gross profit margins from 19.4% to 29.7% - increasing gross profit by R4.4 million, from R74.7 million to R79.1 million. This bodes well for the future, because increases in revenue will have a leveraged effect on operating profit.

The breakthrough came in the middle of FY12 with the conclusion of a wholesale access agreement with one of the MNOs. It seemed that Huge Telecom had survived – it had weathered the storm.

Huge Group Limited Annual Report 2013 XVII


On 1 March 2013, at the start of FY14, the termination rates for a mobile destined telephone call decreased – possibly for the last time for the next few years – from 56 cents per minute to 40 cents per minute. With 75% of its base converted to a wholesale supplier arrangement, the benefits to Huge Telecom are immediate. It remains to be seen whether Telkom will respond this time around with further price cuts but given that wholesale price point parity exists, further degradation of Huge Telecom’s revenues is probably limited.

Broad-Based Black Economic EmpowermentHuge Group recognises the importance of Broad-Based Black Economic Empowerment (BBBEE) and meeting the requirements of the charter regulating the telecommunications industry – the ICT Charter. It is not by chance that Huge Group has a black Chairman.

Corporate Finance ConsiderationsWhen possible the Group continues to repurchase its own 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 105 547 895 ordinary shares of the Company in issue at the start of the financial year. 9 646 926 ordinary shares were held by Huge Telecom as treasury shares while 5 659 352 ordinary shares were held by the Company.

During the year under review, the Company acquired 927 100 ordinary shares, at an average price of 105.11 cents per share, for R974 429, taking the total number of shares held by it to 6 586 452. In April 2012, 5 035 400 ordinary shares were cancelled. This reduced the number of ordinary shares in issue to 100 512 495, while 1 551 052 ordinary shares are still held by the Company.

Huge Telecom increased its shareholding in Huge Group by 60 000 ordinary shares to 9 706 926, taking the total number of shares being held by the Group to 11 257 978.

The Group therefore has a net 89 254 517 ordinary shares in issue after deducting the shares currently held by the Company and Huge Telecom.

The Company has exposure to 8 045 500 ordinary shares of Huge Group underlying 80 455 single stock futures contracts and Huge Telecom has exposure to 359 200 ordinary shares of Huge Group underlying 3 592 single stock futures contracts, and 3 904 579 ordinary shares underlying contracts for difference.

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 23 567 257 ordinary shares. This represents 23.5% of the total issued ordinary shares in issue. The possibility does exist for the Company to reduce the number of shares in issue to 76 945 238.

Since incorporation, the Company has issued 111 760 000 ordinary shares at a weighted average price of 212.6 cents per share. Over the same period the Group repurchased or gained exposure to 34 814 672 ordinary shares at a weighted average price of 193.3 cents per share.

Huge Telecom signed a wholesale access agreement with another MNO in early 2013. This agreement improves its earlier position.

Huge Group Limited Annual Report 2013 XVIII


Governance and King Codes

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.

Future ProspectsThe telecommunications industry continues to grow. The prospects look good for Huge Telecom to increase revenues and grow its market share. At the current level of margin there is good money to be made again and Huge Telecom is certainly positioned correctly. It is a distributor of technology and not an owner thereof, and we think that its decision to leave the other participants in the market to pursue aspirations of being “alternate telcos” was, and remains, correct.

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.

Appreciation

I am privileged to lead a board of directors who work very well together and share a passionate commitment to all things Huge. I thank them for their commitment, support and dedication in working towards the achievement of all our goals this past year. Their insights have been most valuable. Their combined efforts, energy and commitment are important ingredients for the continued success of the Company.

My fellow directors on the board are without doubt one of the most committed and knowledgeable group of individuals with whom I have had the pleasure of working. Whilst the board stringently applies only the highest levels of corporate governance, it is their knowledge of the industry and our Company that I find so remarkable. It is comforting to know that this dedicated group of people will be guiding Huge to a sustainable and profitable future.

I would like to extend my gratitude to the executive team, the management team and our loyal employees and congratulate them on a job well done.

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

Vincent MokholoExecutive Chairman

Huge Group Limited Annual Report 2013 XIX

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

Media activitiesThe Group has decided to impair the remaining carrying values of its investments in media.

Telecommunications activitiesHuge Telecom (Pty) Limited is the Group’s principal revenue and profit generator.

IntroductionIt may be difficult for the casual observer to understand and appreciate the strong position in which Huge Telecom finds itself today. Huge Telecom has also taken significant strides in the last five years in fortifying this position.

If one looks at the last five years, Huge Telecom has also spent a considerable amount of time defending its business.

Many variables (both within the company’s control and outside the company’s control) with which Huge Telecom has had to deal have been mixed together in the last five years to form a cocktail capable of producing wide-ranging, short-term aberrations.

Huge Telecom was forced to defend the impact of the stock market and credit market collapse in 2008. This was exacerbated as a result of the acquisition by its holding company of derivative financial instruments, when substantial calls on cash were made. It did so commendably.

Suppliers became more aggressive and again it was forced to defend – the litigation with MTN Service Provider (Pty) Limited being one instance which is well documented in the current and past directors’ reports.

Competition also increased and commentators were calling the imminent extinction of least cost routing (LCR). The billboards of Huge Telecom’s competitor – Internet Solutions – reverberated. This put enormous pressure on Huge Telecom. Voice over Internet Protocol (VoIP) – as an alleged competitive offering – was in vogue and the income on inbound termination rate revenue was being used by these competitors to cross-subsidise outbound call costs – and there was very little Huge Telecom could do! Sales and revenues came under significant pressure.

James HerbstChief Executive Officer

ceo’S RepoRt

Huge Telecom has taken significant strides in the

last five years.

Huge Group Limited Annual Report 2013 XX

Then came 2011, when mobile termination rates (MTR) dropped again, this time from 89 cents to 73 cents. The competitive pressure from Telkom this time around was significant and Huge Telecom was often left doubting whether or not the decision to stick to a wireless, GSM-based, fixed-cellular, last-mile connectivity service (a connection) to provide voice, messaging, data and, one day, video, was the right decision. With every other LCR operator switching their clients to the fixed-line, last-mile over Telkom or Neotel route the road seemed rather lonely. But Huge Telecom stuck to its guns. The understanding of the broader market and industry principles and general economics stood it in good stead. It made progress with its strategy of securing a wholesale, cost-plus supply arrangement – at last signing with one of the mobile network operators (MNOs) in July 2011.

In the wake of these aberrations Huge Telecom marched on! It started to get the little things right. Overheads were brought under better control, cost structures were reduced, and wholesale, cost-plus input supply agreements were being signed.

Then, in 2012, Huge Telecom made the very difficult decision to walk away from direct sales and focus on indirect sales through third-party distributors – Business Partners. So, once again, more pain has followed. While the medium-term benefits of this decision (creating an environment where Huge Telecom will not be competing with its distribution channel) are well understood, the short-term pain from the termination of connections from direct sales has not made it easier. Huge Telecom has also resigned itself to the fact that it must create a niche for itself in the lower segment of the market. Churn is also accepted as being here to stay.

Some relief followed the drop in the MTR from 73 cents to 56 cents on 1 March 2012, which expanded

cash flow substantially. It did look like Huge Telecom had turned things around. But, the revenue indicators and the trend-lines were still pointing downwards. R5 million worth of monthly minutes were lost from July 2012 to December 2012.

MTR dropped from 56 cents to 40 cents on 1 March 2013. The cash flow benefit is again material and immediate. 75% of Huge Telecom’s base is now wholesale, cost-plus oriented. And, finally it looks like the revenue indicators have turned. The trend-line looks like it’s pointing up. The strategy to sell through Business Partners is gaining momentum and there have been four months of consecutive increases in Huge Telecom’s revenue indicators. A long-term sustainable and substantially profitable business is not far off.

A review of the operations and a summary of the position in which Huge Telecom finds itself today are provided below.

Review of operationsFY13, ending on 28 February 2013, can be characterised as a tale of substantially two parts:1. During the first four months of FY13 Huge Telecom enjoyed the fruits of a lower cost environment – costs of sales and overheads were historically lower. 2. On 1 March 2012, MTR fell from 73 cents per minute to 56 cents per minute for mobile destined telephone calls. This equated to a benefit of 17 cents per minute on all wholesale originated telephone calls.3. Taking into account the fact that during those first four months only about 25% of Huge Telecom’s base of minutes were originating on a wholesale, cost-plus supply basis, the effect on cost of sales amounted to a reduction of about R1 million in cost of sales. This benefit had an

ceo’S RepoRt contInueD

Huge Group Limited Annual Report 2013 XXI

immediate impact on profitability and cash flow generation, lifting both by the same margin – a margin of R1 million.4. Huge Telecom also benefited from the full impact of lower overhead costs, which received focus and attention in the six months from August 2011 to February 2012. This benefit amounted to approximately R500k per month.

In summary, Huge Telecom enjoyed a R1.5 million per month lower cost structure in the five months of FY13 (March 2012 to July 2012) than that to which it had been accustomed in FY12.

The last seven months of FY13 were negatively impacted by churn (the termination of existing connections) exceeding the sale of new connections (the activation of new connections). This had an effect on average monthly revenue, which for the last seven months of FY13 was R5 million lower than the average monthly revenue for the first five months of FY13.

The benefits of the lower cost environment in the first five months of FY13 (of R1.5 million per month) were partially offset by lower revenue and gross profit (and hence lower cash flow) generation and higher costs in the subsequent seven months.

Average monthly total sales of new connections for the last three years have steadily increased. However, the Company faces churn. As concerning as churn is, management decided, in September

2012, not to use lower prices to combat churn. Given Huge Telecom’s predominantly retail-minus-a-discount business model at the time, the view was held that proactive price protection initiatives would come at the expense of profitability. A substantial benefit of a wholesale, cost-plus agreement is the ability to use lower prices more proactively in an attempt to combat churn. Many of the strategies previously tabled are now better grounded because these agreements are in force. For the first five months of FY13, average revenue per trade weighted day (ARTWD) was higher. Huge Telecom pays close attention to ARTWD. This metric is calculated by dividing the revenue for the month summarised on the monthly billing summaries 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. The last seven months of FY13 evidenced lower ARTWD.

ARTWD continued to trend down over the last 12 months – with only July and November 2012 showing upward movement – following the trend established during FY13.

What is encouraging is the fact that the trend line of ARTWD completely flattened between August 2012 and December 2012. Since December 2012 every succeeding month has improved on the ARTWD of the prior month. Confirmation of this upward trend in the months to follow will provide evidence that Huge Telecom may have arrested the declining trend in revenue.

Competitive threats in the market for the provision of last-mile connectivity services remain but Huge Telecom’s competitive position is significantly stronger than what it has been in the last two financial years. A significant number of VoIP over


The sales strategy and sales efforts in the past and the focus on indirect selling in the last twelve months are continuing to bear fruit.

Huge Group Limited Annual Report 2013 XXII

Telkom’s legacy, fixed-line, copper last-mile (Legacy VoIP) participants are starting to experience substantial pressure and are unable to demonstrate the advantages of this last-mile connectivity service. The advantages enjoyed by the Legacy VoIP operators because of early adopters of the service are fast disappearing, with many customers choosing wireless, GSM-based, fixed-cellular, last-mile connectivity services in place of Legacy VoIP.

The strategy set by Huge Telecom in early calendar year 2012 to focus on indirect channels to market using Business Partners is also starting to bear fruit. Eliminating the inherent conflict of interest created by competing with one’s channel was very important and will be remembered in making future decisions of this nature. This is one reason why Huge Telecom has been slow to establish a PABX capability, which would serve only to compete with existing Business Partners – who are largely PABX vendors.

The fact that Huge Telecom does not compete with its Business Partners is very important. The trust and reputation that Huge Telecom has built in the last 18 months is substantial and many vendors of PABX equipment, who sold the services of other last-mile connectivity service providers in the past, have decided to sell the wireless, GSM-based, fixed-cellular, last-mile connectivity services supplied by Huge Telecom.

The decision by Huge Telecom not to compete with its Business Partners applied the same logic as Huge Telecom’s decision not to compete with its suppliers (by becoming a network infrastructure player in the SA telecoms market).

Future ProspectsHuge Telecom is a supplier of a wireless, GSM-based, last-mile connectivity service using fixed cellular routing (FCR) technology. It procures these last-mile connectivity services on a wholesale cost-plus basis from the MNOs.

In other words, its Cell C-MTN-Vodacom coverage is better than a Cell C, MTN or Vodacom coverage in itself. The power of this aggregated service is unquestionable.

Huge Telecom is also now faced with a lower operational risk environment than in the past, its operational and sales structures have been simplified, and its credit control and debtors’ collection processes remain strong points.

The risks the company faces are far lower than that which the company has faced in its 20 year history. In particular, the following key risks have been reduced and/or largely eliminated:1. Complicated retail-minus discount pricing structures;2. Subscription-based breakage;3. Asset-liability matching of the terms of inbound subscriptions (duration and pricing) with outbound services.

The decisions Huge Telecom has taken in the last four years are starting to bear fruit. Huge Telecom’s sales strategy and its drive to recruit new Business Partners are proving to be extremely successful.What is a key to revenue growth in the future is the


Telkom remains Huge Telecom’s most significant competitor.

Huge Telecom is also able to offer better coverage than

any single MNO as it is able to supply substantially all

mobile networks.

Huge Group Limited Annual Report 2013 XXIII


number of active selling Business Partners. Huge Telecom sees the appointment of an increasing number of Business Partners as an effective recipe to combat current and future 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 is the focus for FY14 – to increase the number of actively selling Business Partners.

There is also a lag between the time Business Partners are appointed and the time sales of new connections accrue from these Business Partners. The generating by Business Partners of sales of new connections is a function of the number of active Business Partners. The greater the number of active Business Partners the greater will be the sales of new connections, and the lower will be churn and the higher will be net growth. The acquisition of new Business Partners is therefore a leading indicator of monthly sales of new connections, which in turn is a leading indicator of Huge Telecom’s revenue metric – ARTWD. Huge Telecom is upbeat about its future prospects for revenue growth.

The sales of new connections in April 2013 marked the first time in 38 months that Huge Telecom has had four months of consecutively increasing sales (by new connections). In the 34 months prior January 2013 Huge Telecom has only ever had two months of consecutively increasing sales (by new connections).

This trend looks set to continue. Huge Telecom has enjoyed net growth in new connections for four months in a row. This should support a reversal in the trend established for revenue over the last two years.The churn experienced during the last two financial

years acts as another reminder of the competitive pressures faced by Huge Telecom during this time.

The activation of new connections or sales performance should also be considered against the backdrop of the arithmetic average of Huge Telecom’s selling rates – where selling rates have mostly been higher than those of Huge Telecom’s competitors. This further underpins the real performance achieved. Fruits of this sales performance will evidence itself in the years ahead, given the new basis on which Huge Telecom can now operate.

Huge Telecom also believes that it has entered an environment in which a certain level of churn will have to be accepted. What is important is for the sale of new connections to exceed an acceptable level of churn (based on a percentage of the base of customer connections in force) by a very wide margin. This is a function of 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 challenge and not something for which a company would exit a particular market.

The declines in revenue in FY13 are therefore definitely attributable to churn and not from a lack of sales effort or an inability to activate new connections. The reasons for churn continue to be regularly considered. A significant portion of the churn experienced by Huge Telecom can be attributed to an inability to match competitor prices at that time. This is changing. Huge Telecom’s new price list is very competitive.

The current trend for churn appears to suggest a reversal – when comparing FY13 to FY12. However, high volume customers (measured by minutes

Huge Group Limited Annual Report 2013 XXIV


per connection) have been lost and low volume customers (measured by minutes per connection) acquired, which explains the continued declines in revenue. Having said that, the prospects look good: churn continues to decline and sales of new connections from indirect selling are on the rise.

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. The current monthly annuity book of fixed annuity charges is in the order of about R1.455 million per month, providing a rolling profit contribution of R17.457 million per annum. This fixed annuity is growing at about R55 000 per month at present. This is another example of slowly getting the different metrics in the business right and is testimony to the fact that Huge Telecom is on the right road.

Customer engagement by using enhanced information technology services will become an important success factor in the future and is on the top of the list of strategy items for FY14.

Having said that, the prospects look good: churn continues to decline and sales of new connections from indirect selling are on the rise.

Appreciation

I would like to extend my gratitude to my executive team, the management team and our staff. Without them, the prospects for the future would not be as rosy. And to our loyal and very valued customers, who have stuck with us through the lean times, and are now able to enjoy the best alternative last-mile corporate telephony service available in South Africa.

James HerbstChief Executive Officer

Page (a) Huge Group Limited Annual Report 2013

XXV: Sustainability Report

Introduction

The Board of Huge is pleased to present to stakeholders of the Company the third sustainability report prepared in terms

of recent developments and guidelines in the international corporate reporting arena. This initiative is a continuation of the

process begun in 2011 which is continuously reviewed and refined by the Company, allowing Huge to move closer towards

the goals of sustainability reporting and comprehensive sustainable development, as well as being indicative of the

Company’s commitment to attaining those goals.

As stated in the 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 Report

All activities of the Group over which the Board and senior management have control have been included in this report

insofar as practical and deemed necessary.

CORPORATE GOVERNANCE REPORT

Introduction

All JSE listed companies are required to disclose the extent of their compliance with the King Code as amended from time

to time. The Board of Huge is committed to the principles and guidelines of the King Code, and at all times endeavours to

ensure adherence thereto where applicable and practical. The Company is committed to the principles of fairness,

accountability, responsibility, discipline, independence, social responsibility and transparency as advocated by the King

Code, and constantly strives to ensure ethical management, prudent decision-making and sound corporate governance.

The Board

Structure of the Board

The Board of Huge consists of a unitary Board which is assisted in fulfilling its duties and responsibilities by a Combined

Audit and Risk Committee, a Remuneration Committee, and a Social and Ethics Committee.

Changes to the Board post its year end

Mr MR Beamish resigned as a director of the Company on 20 May 2013. No other changes to the Board were made post

year end.

Independence of the Board and Board Balance

The Board of Huge comprises three executive and three 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. The 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.

Page (b) Huge Group Limited Annual Report 2013

Sustainability Report (continued)

CORPORATE GOVERNANCE REPORT (continued)

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 LR.

The Board is ultimately responsible for the Group’s performance, which includes enhancing and protecting the Group’s

resources and acting in the best interests of all stakeholders at all times. In fulfilling this responsibility, the Board

constantly reviews the controls and procedures that are in place in order to ensure the accuracy and integrity of accounting

records and procedures. The directors’ statement of responsibility is set out on page 4 of these AFS.

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 LR, and their appointments are ratified by shareholders at the Annual General

Meeting of the Company immediately following their appointment.

Advice

The directors all have unlimited access to the Company Secretary, Designated Advisor, Auditor and any other such

professional persons with whom they may wish to consult. In addition, directors are entitled to ask questions of any

employees of the Group and enjoy unrestricted access to Company documentation and relevant information.

Audit and Risk Committee

Huge has a Combined Audit and Risk Committee, of whom the members during the year under review were Mr BA

McQueen (Chairman), Mr KD Jarvis and Mr SP Tredoux. Mr Jarvis resigned from the Board and the Combined Audit and

Risk Committee on 8 June 2012, and Mr McQueen on 28 June 2012. Mr Jarvis was replaced by Mr Beamish, and Mr

McQueen by Mr Gammie, who serves as the Chairman of the Combined Audit and Risk Committee. Since year end, 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.

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

interpretation and application of IFRS.

Page (c) Huge Group Limited Annual Report 2013



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 AFS prior to making a recommendation to the Board in this regard. In addition, the Combined

Audit and Risk Committee is required to evaluate the qualifications, experience and performance of the Financial Director

of the Group in order to ensure that the incumbent is fully qualified for the role which he or she fulfils. During the year

under review, Mr Neil Brian Wensley resigned as the Group Financial Director with effect from 30 September 2012. Mr

David Deetlefs was appointed as the Group Financial Director, with effect from 1 October 2012. The Combined Audit and

Risk Committee conducted a thorough interview process with 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.

Page (d) Huge Group Limited Annual Report 2013



Remuneration and Nomination Committee

During the year under review, the Group had a Combined Remuneration and Nomination Committee, of whom the

members were Mr KD Jarvis (Chairman), Mr BA McQueen and Mr SP Tredoux, all of whom are independent. As a result

of changes to the Board, the Combined Remuneration and Nomination Committee was dissolved and responsibility for

nominations reverted to the Board as a whole. A new Remuneration Committee was established, of whom the members

were Mr MR Beamish (Chairman), Mr AD Potgieter and Mr VM Mokholo. Subsequent to year end, Mr Beamish resigned

as a director of the Company, and his position on the Remuneration Committee was filled by Mr AD Potgieter. 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;

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

making recommendations to the Board with regard to all new appointments to the Board; and

Considering the balance and effectiveness of the Board.

The 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 and the Company Secretary. A frame of

reference for the Social and Ethics Committee has been drafted and approved by the Board. The Committee is

responsible for:

monitoring the company’s level of compliance with relevant social, ethical and legal requirements and codes of best

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 Committee shall meet at least twice per annum.

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:

Page (e) Huge Group Limited Annual Report 2013



Director Board

meetings

Percentage

attended

Combined

Audit and

Risk

Committee

meetings

Percentage

attended

Remuneration

Committee

meetings

Percentage

attended

SP Tredoux

Lead Independent Non-

executive Director

5/6 83.3 5/5 100 1/2 50

JC Herbst

Chief Executive Officer

6/6 100 5/5 (invitee) 100 1/2 (invitee) 50

AD Potgieter

Non-executive director

5/6 83.3 2/2 100 1/1 100

NB Wensley

Group Financial director

4/4 100 4/4 100 - -

VM Mokholo

Executive Chairman

6/6 100 2/5 (invitee) 40 1/1 100

KD Jarvis

Lead Independent Non-

executive director

1/1 100 2/2 100 1/1 100

D Deetlefs

Group Financial Director

3/3 100 1/1 100 - -

BA McQueen

Independent Non-executive

director

2/2 100 3/3 100 1/1 100

MR Beamish

Non-executive director

5/6 83.3 4/4 100 1/1 100

DR Gammie

Independent Non-executive

director

4/4 100 2/2 100 - -

Designated Advisor 6/6 100 5/5 (invitee) 100 1/2 50

Company Secretary 6/6 100 5/5 100 2/2 100

Auditor - - 5/6 83.3 - -

Note:

D Deetlefs was appointed to the Board of directors on 1 October 2012.

NB Wensley resigned from the Board of directors on 30 September 2012.

KD Jarvis resigned from the Board of directors on 7 June 2012.

BA McQueen resigned from the Board of directors on 28 June 2012.

DR Gammie was appointed to the Board of directors on 28 June 2012.

Page (f) Huge Group Limited Annual Report 2013



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 2011, and in line with the King III report on Corporate Governance, the non-executive directors

have been paid a monthly retainer of R15 000 per month, and the non-executive chairman, a monthly retainer of R25 000

per month. The current meeting fees are given in the table below:

Chairman Member

Board 10 000 10 000

Board Committee 10 000 10 000

The non-executive directors proposed to the Remuneration Committee that these fees remain unchanged for the 2013

financial year, which proposal was accepted.

In addition, the Board undertook to schedule Board Committee and Board meetings on the same days, in order to ensure

that the cost of non-executive director remuneration would be kept to a minimum each year. Any ad hoc special Board

meetings over and above the regular Board meetings attract a fee of R3 000, and are 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 AFS 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

nor an associate of a director is permitted to deal in the Company’s shares without the prior authorisation of the Chairman.

A register of clearances to deal is kept at the Company’s registered office.

Page (g) Huge Group Limited Annual Report 2013



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 meetings.

The Board has satisfied itself as to the competence, qualifications and experience of the Company Secretary, who holds

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. In addition, no exceptions emerged during the statutory audit for the year

ended 28 February 2013.

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.

Page (h) Huge Group Limited Annual Report 2013



Principles contained in King III with which the Company has not as yet complied and clarification of the non-

compliance (continued)

Governance element and associated principle Comply Partially comply Under review / do not comply

ETHICAL LEADERSHIP AND CORPORATE CITIZENSHIP

Effective leadership based on an ethical foundation X

Effective management of company’s ethics X

Responsible corporate citizenship X

Assurance statement on ethics in integrated annual report X

BOARDS AND DIRECTORS

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

Directors act in the best interests of the Company X

Framework for the delegation of authority has been established X

Directors are appointed through a formal process X

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

X

Appointment of well-structured committees and oversight of key functions X

Directors and executives are fairly and responsibly remunerated X

The Company’s remuneration policy is approved by its shareholders X

Strategy, risk, performance and sustainability are inseparable X

The Chairman of the Board is an independent non-executive director X 1

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

X

Formal induction and on-going training of directors is conducted X

Regular performance evaluation of the Board, its committees and the individual directors

X 2

An agreed governance framework between the group and its subsidiary

boards is in place

X

Remuneration of directors and senior executives is disclosed X

AUDIT COMMITTEE

Effective and independent X

Chaired by an independent non-executive director X

A combined assurance model is applied to improve efficiency in assurance activities

X3

Suitably skilled and experienced non-independent non-executive directors X

Oversees integrated reporting X

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

X

Oversees internal audit X 4

Oversees the external audit process X

Page (i) Huge Group Limited Annual Report 2013

Integral to the risk management process X

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

GOVERNANCE OF RISK

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

tolerance

X

The Board delegates the process of risk management to management X

Frameworks and methodologies are implemented to increase the probability of

anticipating unpredictable risks

X

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

X

The risk committee assists the Board in carrying out its responsibilities X

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

X

Management implements appropriate risk responses X

Sufficient risk disclosure to stakeholders X

GOVERNANCE OF INFORMATION TECHNOLOGY

The Board is responsible for information technology (IT) governance X

Management is responsible for the implementation of an IT governance framework

X

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

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

X

IT is aligned with the performance and objectives of the Company X

The Board monitors and evaluates significant IT investments and expenditure X

IT assets are managed effectively X

COMPLIANCE WITH LAWS, CODES, RULES AND STANDARDS

The Board ensures that the Company complies with relevant laws X

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

X

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

X

The Board has delegated to management the implementation of an effective

compliance framework

X

Page (j) Huge Group Limited Annual Report 2013



GOVERNING STAKEHOLDER RELATIONSHIPS

Appreciation that stakeholders’ perceptions affect the Company’s reputation X

There is an appropriate balance between its various stakeholder groupings X

Transparent and effective communication to stakeholders X

Delegated to management to proactively deal with stakeholder relationships X

Equitable treatment of stakeholders X

Disputes are resolved effectively and timeously X

INTEGRATED REPORTING AND DISCLOSURE

Ensures the integrity of the Company’s integrated annual report X

Sustainability reporting and disclosure is independently assured X

Sustainability reporting and disclosure is integrated with the Company’s

financial reporting

X

Notes:

1. In order to ensure compliance with the requirements for the Combined Audit and Risk Committee, the Board was restructured

and an executive director was appointed as the Chairman of the Board. There are sufficient independent directors on the Board

to ensure good governance and balance in all matters.

2. Performance evaluation is in place for the executive directors. The Board is considering how best to implement performance

evaluations for the non-executive directors.

3. The Group does not have any independent assurance processes in place at present.

4. The Combined Audit and Risk Committee continues to evaluate the need for an Internal Audit Function, but is of the opinion that

the size of the Group does not warrant an Internal Audit Function at present.

DESIGNATED ADVISOR

In accordance with the JSE’s Listings Requirements relating to companies listed on the Alternative Exchange, the

Company is required to have a Designated Advisor at all times. The Company’s Designated Advisor is Arcay Moela

Sponsors Proprietary Limited.

RISKS

The Group has a comprehensive risk matrix which is continually reviewed and updated by the Board. All potential risks are

timeously brought to the Board’s attention. Risk assessment is a standing item on the agenda of Board meetings and at

least one Combined Audit and Risk Committee meeting per year is dedicated to the revision and discussion of the risk

matrix.

STAKEHOLDERS

The Group 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].

http://www.hugegroup.co/

mailto:[email protected]

Page (k) Huge Group Limited Annual Report 2013

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 (appointed to the Combined Audit and Risk Committee

on 28 June 2012)

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

Mr MR Beamish (Member) – Non-executive director (appointed to the Combined Audit and Risk Committee on 28 June

2012)

Mr BA McQueen (Chairman) - Independent non-executive director (resigned 28 June 2012)

Mr KD Jarvis (Member) - Lead Independent non-executive director (resigned 7 June 2012)

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 2013

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 2013 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 2013

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 2013 financial year. In addition, the committee has established a

policy and procedures with regard to use of the external auditor for non-audit services.

During the course of the financial year, Mr Neil Wensley resigned as the Group Financial Director. Mr David Deetlefs was

appointed as the Group Financial Director on 1 October 2012. The Combined Audit and Risk Committee was extensively

involved in the interview process, and was therefore satisfied as to the expertise and experience of the financial director.

With regard to an Internal Audit function, the Company has not presently established an Internal Audit function. Due to the

historical nature of the Company’s legal structure, its assets and its size and stage of 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.

Report of the Combined Audit and Risk Committee (continued)

Page (l) Huge Group Limited Annual Report 2013

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 2013, its financial performance for the

year ended 28 February 2013, the changes in equity and cash flows for the period then ended, in accordance with IFRS

and the Companies Act.

Dennis Robert Gammie

Chairman of the Combined Audit and Risk Committee

XXVI

Huge Group Limited (Registration number 2006/023587/06)

Consolidated Annual Financial Statements for the year ended 28 February 2013



General Information Country of incorporation and domicile South Africa

Nature of business and principal activities Investment holding company currently holding investments in subsidiary companies operating in the telecommunications, technology and media

industries

Directors David Deetlefs Appointed 1 October 2012

Dennis Robert Gammie Appointed 28 June 2012

James Charles Herbst

Vincent Mokhele Mokholo

Anton Daniel Potgieter

Stephen Peter Tredoux

Michael Ronald Beamish Resigned 20 May 2013

Kenneth Delroy Jarvis Resigned 7 June 2012

Brian Alexander McQueen Resigned 28 June 2012

Neil Brian Wensley Resigned 30 September 2012

Registered office 3M Building

1st Floor, East Wing

146a Kelvin Drive

Woodmead

2191

Business address 3M Building


146a Kelvin Drive

Woodmead

2191

Postal address PO Box 16376

Dowerglen

1612

Auditors BDO South Africa Incorporated

Registered Auditors

Business address

22 Wellington Road Parktown

2193

Postal address

Private Bag X60500 Houghton

2041

1



General Information Company Secretary Arcay Client Support Proprietary Limited (up until 1 August 2012)

Business address

Arcay House

Number 3 Anerley Road

Parktown

2193

Postal address

PO Box 62397

Marshalltown

2107

Jean Tyndale-Biscoe (from 1 August 2012)

Business address

3M Building


146a Kelvin Drive

Woodmead

2191

Postal address

PO Box 16376

Dowerglen

1612

Tax reference number 9378909155

VAT reference number 4390253955

Level of assurance These Consolidated Annual Financial Statements have been audited in compliance with the applicable requirements of the Companies Act, No. 71 of

2008.

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

David Deetlefs CA(SA)

Published 29 May 2013

2



Index The reports and statements set out below comprise the AFS presented to the shareholders:

Index Page

Directors' Responsibilities and Approval 4

Company Secretary’s Certification 5

Directors' Report 6 - 15

Independent Auditors' Report 16

Statement of Financial Position 17

Statement of Comprehensive Income 18

Statement of Changes in Equity 19 - 20

Statement of Cash Flows 21

Accounting Policies 22 - 32

Notes to the Consolidated Annual Financial Statements 33 - 67

3



Directors' Responsibilities and Approval 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 International Financial Reporting Standards. The external auditors are engaged to express an independent

opinion on AFS.

The AFS are prepared in accordance with International Financial Reporting Standards and are based upon appropriate accounting policies

consistently applied and supported by reasonable and prudent judgements and estimates.

The directors acknowledge that they are ultimately responsible for the system of internal financial control established by the Group and place considerable importance on maintaining a strong control environment. To enable the directors to meet these responsibilities, the

Board sets standards for internal control aimed at reducing the risk of error or loss in a cost effective manner. These standards include the proper delegation of responsibilities within a clearly defined framework, effective accounting procedures and adequate segregation of duties to ensure an acceptable level of risk. These 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 control provides reasonable assurance that the financial records may be relied on for the preparation of the AFS. However, any system of internal 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 year to 28 February 2014 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 reviewing and reporting on the Group's AFS. The AFS have been examined by the Group's external auditors and their report is presented on page 16.

The AFS set out on pages 6 to 68, which have been prepared on the going concern basis, were approved by the Board on 29 May 2013 and were signed on its behalf by:

James Charles Herbst David Deetlefs

4



Company Secretary’s Certification Declaration by the Company Secretary in terms of Section 88(2)(e) of the Companies Act

In terms of Section 88(2)(e) of the Companies Act 71 of 2008, as amended, I certify that the Group has lodged with the Companies and Intellectual Property Commission, 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

Company Secretary 29 May 2013

5



Directors' Report The directors submit their report for the year ended 28 February 2013.

1. Nature of business

Huge is an investment holding company holding investments in subsidiary and associate companies operating in the telecommunications, technology and media 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:

Telecommunications

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

Software, media and technology

During the year under review, 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 to third parties to which it

provides such services.

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.

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 17 to 68.

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 2013;

• The expected further improvement in the Group’s profitability as reflected in the budget for the year that will end on 28 February 2014, which budget was approved by the Board during February 2013;

• The impact of the MTNSP dispute and the possible settlement thereof. Further details in this regard are provided in note 16 of

this report and note 42 of the notes to the AFS;

• The continuing impact of lower Mobile Termination Rates 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 mitigated the impact thereof;

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

• 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;

• Huge Telecom is party to certain loan agreements with FirstRand Bank. Although certain covenants of the loan agreements

were in breach at the end of the reporting period, FirstRand Bank has not given written notice to Huge Telecom to remedy the breach nor has it notified Huge Telecom that it intends cancelling the facilities. Correspondence received by the Company after the end of the financial year records that the facilities remain in place and will be reviewed again on an ad hoc basis.

Accordingly the utilised portion of such banking facilities remains reflected as a current liability;

6



Directors' Report 3. Going concern (continued)

• The Group is solvent and liquid. The AFS of certain subsidiary companies and associate companies within the Group reflect accumulated deficits at year end. The companies and the respective accumulated deficits are: • Huge Telecom - R Nil (2012: R3,881,989);

• Huge Mobile - R4,590,297 (2012: R2,414,260); • Huge Cellular - R2,657,367 (2012: R847,707);

Huge Software - R6,136,607 (2012: R8,121,213);

• Eyeballs - R21,082,241 (2012: R13,865,061); • Ambient - R1,309,140 (2012: R778,146); • Le Gacy - R270,806 (2012: R81,592).

Loan accounts between Huge and certain of its subsidiary companies have been sub-ordinated to enable these companies to settle their respective obligations as and when they fall due. Appropriate provisions have been raised in respect of the recoverability of these loans.

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 Memorandum of Incorporation 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 has been fully impaired during the 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 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 2013 2012 Huge Telecom 100 4,151,896 (13.103,571)

Huge Mobile 100 (2,176,037) 8,986,358 Huge Cellular 100 (1,809,660) (847,707)

Huge Software 100 1,984,607 (428,218) Eyeballs 77 (7,217,180) (1,408,248)

Ambient 50.2 (530,994) (707,330) Le Gacy 50.3 (189,214) (81,592)

7. Goodwill

The Board has considered the value of goodwill recognized by Huge on the original acquisition of Huge Telecom and Huge Mobile (the Goodwill) and has concluded that no impairment to the Goodwill is considered necessary given the following factors:

Huge Telecom and Huge Mobile (Huge T&M) were originally formed to take advantage of a price arbitrage between the cost to an ordinary client of making a telephone call to a mobile destination using the services of Telkom, and the cost of making the

same telephone call using the services of MNOs in the retail telephony services market. This price arbitrage was initially a 40% price advantage and was passed on by the likes of Huge T&M to its clients on the date on which a client commenced utilising Huge T&M’s telephony services;

In order to deliver its telephony services to its clients, Huge T&M adopted a commercial business model called LCR. LCR involved

the subscription by Huge T&M, as an ordinary retail consumer, for retail mobile packages from the respective MNOs;

Due to its bulk buying power, Huge T&M was able to secure bulk discounts and other incentives (in the form of CIBs) and marketing incentives) from the MNOs in respect of the retail subscription based mobile packages purchased from the MNOs and sold to its clients;

It was these discounts and incentives that generated the gross profit, net profit and cash flows of Huge T&M and ultimately supported the valuation of the Goodwill;

In July 2010 the major MNOs ceased paying CIBs; the management of Huge T&M (Management) considered this a potential

indicator of the impairment of the Goodwill (the CIB Impairment Indicator);

7



Directors' Report 7. Goodwill (continued)

As early as April 2008 Management and the Board started giving due consideration to the medium and long-term sustainability

of the business model adopted by Huge T&M in operating in its chosen market; LCR was considered generally at the time to

be unsustainable given that it was a retail-price-less-discount business model (the Retail Risk) and catered for only part of

Huge T&M’s client base’s total needs (the Service Risk);

Because LCR was borne out of a retail arbitrage relating to mobile terminated telephone calls (in other words outbound mobile

telephone calls) only, it inherently exhibited the Service Risk - given that only one sixth (or at best one quarter) of the telephony

services used by the clients of Huge T & M were being provided by it; the other five sixths (or at best the other three quarters) of

the telephony services, which include outbound international, national and local telephone calls, and inbound international,

mobile, national and local telephone calls, were being provided by Telkom (the Foregone Destinations);

At the time, Management and the Board also considered the medium and long-term sustainability of the technology model of FCR

used by the LCR business model to deliver the ‘last-mile’ of the telephony services that Huge T&M was providing and

compared the sustainability and economic viability of this last-mile technology solution against other technology solutions, such

as VoIP, over Telkom’s legacy fixed-line infrastructure, touted by many industry commentators as a solution for use in providing

the last-mile for all telephony services;

After due consideration, Management and the Board concluded that the cost-benefit ratio of using FCR technology to deliver the

last-mile for telephony services far outweighed the cost-benefit ratio of switching to VoIP technology, using Telkom’s legacy

fixed-line infrastructure, to deliver the last-mile for telephony services;

From as early as 2008, Management and the Board saw the benefits of embarking on a strategy of eliminating the Retail Risk by

securing a wholesale agreement that would see it acquire wholesale last-mile services from one or more of the MNOs for use in

providing telephony services to the clients of Huge T&M; in February 2011 Management concluded such an agreement (the

Wholesale Advantage);

In obtaining the Wholesale Advantage, Huge T&M is able to offer a full suite of telephony services, including the Foregone Destinations;

Management and the Board estimate that the Foregone Destinations are equal to, at worst, three times the existing services

provided by Huge T&M (measured in minutes), and at best, equal to five time the existing services provided by Huge T&M (measured in minutes) (the Service Multiplier);

As a result of the regulatory changes to termination rates, the wholesale input costs of Telkom, taken into account when pricing telephony services to mobile destinations, started decreasing, allowing Telkom to reduce its mobile telephony prices to the market;

Between August and November 2011, Telkom aggressively targeted the upper segment of the telephony services market - defined by

Huge T&M as clients spending more than R100 000 per month on telephony services - by substantially reducing prices for telephony

services to mobile destinations;

Management and the Board considered strategies to combat the loss of revenue from clients in the upper segment of the market

moving to Telkom (Upper Segment Churn), including matching prices for Telkom’s telephony services to mobile destinations, and

concluded that the retention of the upper segment at ever reducing profit margins and at any cost was futile (Upper

Segment Churn);

Management and the Board considered the impact of Upper Segment Churn on revenue (the Revenue Impact) for the 2013

financial year and concluded that the Revenue Impact, although short-term in nature, was still a potential indicator of an

impairment of the Goodwill (the Churn Impairment Indicator);

Management and the Board considered the CIB Impairment Indicator and the Churn Impairment Indicator (Indicators) and

concluded that the Service Multiplier more than mitigated the impact of the Indicators.

The Board continues to assess the industry and the possible changes that could impact the Goodwill.

8



Directors' Report

8. Authorised and issued share capital

Authorised share capital

1 000 000 000 ordinary par value shares of R 0.0001 each.

Issued share capital

Since incorporation, the Company has 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 2013 amounts to 100 512 495 (2012: 105 547 895 shares).

Repurchase by the Company and its subsidiary companies of its ordinary shares

At the last annual general meeting of the Company held on 28 September 2012, 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 acquire or repurchase its own shares. This general authority remains valid until the next annual general meeting, which is to be held on 12 July 2013. Shareholders

will be requested at that meeting to consider a special resolution to renew this general authority, which will remain valid u ntil the following annual general meeting.

Ordinary shares of the Company acquired by the Company and subsidiary companies of the Company

During the year the Company purchased 927 100 shares on the open market of the JSE. Since incorporation, the Company has repurchased in aggregate 12 798 557 shares (2012: 11 871 457 shares). Of the shares repurchased, 11 247 505 (2012: 6 212 105) have been cancelled. The remaining shares held by the Company (1 551 052 shares) are to be cancelled.

The Group (through Huge Telecom) holds a further 9 706 926 ordinary shares as treasury shares.

The acquisition of ordinary shares by the Company and by its subsidiary company, Huge Telecom, is set out below:

Transactions by Huge as Buyer/(Seller) Number Average price Value of

of shares per share transaction

(in cents) (R)

2009 (1) 3,311,546 122.52 4,057,191

2010 (2) (*) (3,311,546) 118.00 (3,907,624) 2011 (3) 6,212,105 85.67 5,321,685

2012 (4) (**) 5,659,352 118.62 6,713,373

2013 (5) 927,100 105.11 974,429

Total 12,798,557 102.82 13,159,054

Transactions by Huge Telecom as Buyer/(Seller)

Transaction date Number Average price Value of of shares per share transaction

(in cents) (R)

2009 (1) 2,281,691 147.83 3,372,956

2010 (2) 7,365,235 88.19 6,495,456

2012 3,500,000 140.00 4,900,000 2012 (3,500,000) 140.00 (4,900,000)

2013 (5) 60,000 115.00 69,000

Total 9,706,926 102.37 9,937,412

* Includes a sale from Huge to Huge Telecom ** Includes a sale from Huge Telecom to Huge (1) In terms of the general authority granted by shareholders to the directors on 22 September 2008

(2) In terms of the general authority granted by shareholders to the directors on 27 November 2009 (3) In terms of the general authority granted by shareholders to the directors on 1 October 2010 (4) In terms of the general authority granted by shareholders to the directors on 28 October 2011 (5) In terms of the general authority granted by shareholders to the directors on 28 September 2012

9. Derivative contracts acquired by the Group

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

9



Directors' Report 9. Derivative contracts acquired by the Group (continued)

SSF contracts acquired by Huge Telecom

One SSF contract provides exposure to 100 underlying reference instruments - in this case, 100 ordinary shares in Huge.

Transaction date Number of Spot price Value of Margin

SSF per nominal posted/

contracts underlying exposure (refunded)

acquired/ instrument gained/

(disposed) (in cents) reduced

(R) (R)

27 June 2008 1,061 330.58 350,745 350,745

30 June 2008 500 330.00 165,000 165,000 1 July 2008 933 344.00 320,952 320,952

2 July 2008 250 370.00 92,500 92,500 9 September 2008 (2,035) 400.90 (815,832) (815,832)

16 September 2008 613 362.00 221,906 221,906 26 September 2008 800 362.00 289,600 289,600

7 October 2008 1,200 343.00 411,600 411,600 10 October 2008 250 344.00 86,000 86,000

13 October 2008 20 370.00 7,400 7,400

Total 3,592 1,129,871 1,129,871

CFDs acquired by Huge Telecom

A CFD provides exposure to an equivalent number of underlying reference instruments - in this case, one ordinary share in Huge.


CFD per nominal posted/




(R) (R)

10 July 2008 5,000 360.00 18,000 18,000

14 July 2008 6,000 360.00 21,600 21,600 16 July 2008 400 360.00 1,440 1,440

17 July 2008 800 364.00 2,912 2,912 24 July 2008 230,325 362.50 834,930 834,930

24 July 2008 620,5600 362.75 2,250,705 2,250,705

30 July 2008 63,894 360.00 230,018 230,018 31 July 2008 750,000 360.00 2,700,000 2,700,000 1 August 2008 60,000 360.00 216,000 216,000

6 August 2008 700 330.00 23,041 23,041

11 August 2008 18,300 330.00 60,449 60,449 20 August 2008 50,000 320.00 160,000 160,000 29 August 2008 125,000 343.00 428,750 428,750

30 September 2008 9,300 350.00 32,550 32,550 2 October 2008 356,000 360.00 1,281,600 1,281,600

3 October 2008 30,000 356.00 106,800 106,800 6 October 2008 1,572,100 354.00 5,565,234 5,565,234

Total 3,904,579 13,934,029 13,934,029

10



Directors' Report 9. Derivative contracts acquired by the Group (continued)

SSF contracts acquired by the Company

One SSF contract provides exposure to 100 underlying reference instruments - in this case, 100 ordinary shares in Huge.


SSF per nominal posted/




(R) (R)

16 October 2008 80,455 362.00 29,124,710 29,124,710

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

10. Directors' interests in the share capital of the company

As at 28 February 2013, the following directors held shares in the issued share capital of the Company:

2013 - Number of shares held Direct Indirect Total % James Charles Herbst 151,257 10,186,570 10,337,827 11.58

Anton Daniel Potgieter 6,163,400 3,664,325 9,827,725 11.01 Michael Ronald Beamish 2,711,034 6,401,149 9,112,183 10.21

Vincent Mokhele Mokholo 233,600 2,526,069 2,759,669 3.09 David Deetlefs * 250,000 - 250,000 0.28

Stephen Peter Tredoux 146,510 - 146,510 0.17

Total ** 9,655,801 22,778,113 32,433,914 36.34

* acquired prior to being appointed as a director

2012 - Number of shares held Direct Indirect Total % James Charles Herbst 151,257 10,095,885 10,247,142 11.35

Anton Daniel Potgieter 6,163,400 3,664,325 9,827,725 10.89 Michael Ronald Beamish 2,711,034 6,284,300 8,995,334 9.97

Vincent Mokhele Mokholo 233,600 2,526,069 2,759,669 3.06 Neil Brian Wensley 360,000 - 360,000 0.40

Stephen Peter Tredoux 146,510 - 146,510 0.16

Total ** 9,765,801 22,570,579 32,336,380 35.83

** refer to note 17 of the AFS

Share dealings during the financial year (number of shares) Bought Sold Associate of James Charles Herbst 90,685 - Associate of Michael Ronald Beamish 116,849 -

207,534 -

Share dealings after the end of the financial year and up to the date of the approval of these financial statements (number of shares) Bought Sold

James Charles Herbst – indirect holding 3,333,334 -

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.

11



Directors' Report 12. Special resolutions

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

Date of special resolution Nature of special resolution 28 September 2012 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 Memorandum of Association of the Company, the Companies Act 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 2012, in terms of section 69(9) of the Companies Act.

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

obligations and to provide loans and financial assistance to any one or more of the subsidiary companies of the Company from time to time, subject to the provisions of the LR.

The following special resolutions were passed by subsidiary companies during the year under review:

- The change of name of CentraCell Proprietary Limited to Huge Mobile Proprietary Limited; and

- The change of name of Huge Media Proprietary Limited to Huge Software Proprietary Limited.

13. Dividends

No dividends were declared or paid to the shareholders during the year (2012: R Nil).

14. Pro-active monitoring of financial statements

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

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 correctly accounted for by the Group but the company should have accounted for it as a cash settled share based payment in its separate financial statements;

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 (the Material SSFs) and its subsidiary company, Huge Telecom.

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

1. The Eyeballs option was granted on 1 March 2009. By 28 February 2010, the fair value of the option had declined to an insignificant

amount;

2. With regard to the Eyeballs Investment Matter, by 28 February 2010 Eyeballs had become a subsidiary of Huge and therefore

displayed no continuing effect on the future annual financial statements (AFS) of the Company for reporting periods after 28 February 2009;

3. The accounting for the Eyeballs Step Acquisition in the 2010 AFS related solely to the disclosure contained in a note to the financial statements. There was no effect on the profit or loss, statement of financial position and statement of cash flows;

4. Full disclosure of the Kimber Claim was timeously and properly made in the Relevant AFS. The Board was at all material times, and remains, of the view that the Kimber Claim has no reasonable prospects of success (and that this is 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

12



Directors' Report 5. All material facts and circumstances pertaining to the SSFs have 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 1.6 and 16 to the AFS for respective explanations of the accounting policy and

accounting treatment relating to the SSFs.

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

On 28 October 2008 (the 28 October Letter) the JSE wrote to the Company. In the 28 October Letter the JSE, in relation to the Material SSFs, stated that: “2. The JSE has considered all the facts and information at its disposal and has decided that the Company’s purchase of

the SSF’s on the Company’s securities may constitute a specific repurchase from a related party, as defined in section 5.69 of the JSE’s Listings Requirements. 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.

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

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 the same resolution on 22 September 2008. The 22 September 2008 resolution was registered by the Registrar of Companies and Close

Corporations on 20 October 2008.

In making the Decisions the JSE has made it impossible for the Company to make use of a general authority to acquire the shares underlying the Material SSFs and take physical delivery. Accordingly, a special resolution will be required to acquire the underlying shares in question.

. In the opinion of the directors, the Decisions of the JSE have forced the Company to roll the Material SSFs (notwithstanding that it may

have done so in any event) by closing out the shorter dated contracts and entering into longer dated contracts. As of the date of these AFS the Company has rolled the Material SSFs 13 times. In substance then, the Material SSFs have always been cash settled.

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.

The Board is of the view that the Material SSFs do not display exactly the same characteristics as the forward contracts in the illustrative examples to IAS 32 for the reasons recorded above. For this reason it is the view of the Board of the Company that treating the Material SSFs as equity instruments will:

1) prejudice users of the Company’s financial statements in predicting the entity’s future cash flows and, in particular, their timing

and uncertainty as recorded in paragraph 9 of IAS 1: Presentation of Financial Statements; and

2) be so misleading that it would conflict with the objective of financial statements set out in the Framework Paragraph 19 of IAS

1.

The Board is of the view that the Material SSFs are, have always been, and continue to be, correctly recognized as derivative contracts with gains and losses recognised in profit or loss for of the reasons recorded above.

13



Directors' Report 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

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, and 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; 3) MTNSP was required to deliver a declaration, and 4) the costs of the application are to be the costs in the cause of a trial action.

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 does not include a prayer for the winding up of Huge Telecom. Huge Telecom filed its Special Plea and Plea defending the action, and on 18 April 2013 MTNSP filed a replication.

The matter has as yet not been set down for hearing.

On 15 February 2012 the Sheriff of the South Gauteng High Court served a combined summons against Huge Telecom in terms of wh ich MTNSP prayed for judgment against Huge Telecom for payment of the sum of R 56 020 357 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. Such action will only proceed in the event that MTNSP is unsuccessful in the first action.

The matter has not as yet been set down for hearing.

The Group has recognised the assets and the liabilities relating to the MTNSP dispute in accordance with the settlement agreement which MTNSP claims was reached between the parties. As such the carrying amounts of these assets and liabilities may be materially adjusted within the next financial year, depending on the outcome of the legal dispute.

Mr JP Kimber

On 22 November 2010, 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 (the option agreements).

On 12 October 2011 Kimber launched an application in the South Gauteng High Court for rectification of the option agreements and for payment of the sum of R6.8 million plus interest thereon (the main application).

Huge Telecom opposed the notice of motion in terms of the main application and filed its answering affidavit on 19 October 2011.

On 14 November 2011 Huge Telecom launched its own notice of motion in terms of a separate Section 6(1) application in the South Gauteng

High Court seeking an order compelling Kimber to comply with the arbitration undertakings in the option agreements, which prevent

Kimber from litigating in court.

The matter was heard on 28 March 2012. On 31 August 2012, Vermeulen AJ passed judgment a) staying the application by Kimber until the

finalization of the arbitration proceedings in relation to the dispute relating to the option agreements, and b) ordering Kimber to pay Huge

Telecom’s costs of this application.

Kimber has as yet not launched arbitration proceedings against Huge Telecom.

No amounts have been recognized in the financial results given that the Board is of the view that there is no basis to the cause of action and such action therefore has little chance of success.

Potential litigation

Dispute between Huge and Telemasters Holdings Limited (Telemasters)

During February 2013 Telemasters cancelled an agreement with Huge for the supply of MTN airtime and suspended the SIM cards held by Huge. As at 22 March 2013 Telemasters alleges that Huge is indebted to it in the amount of R 4.4 million. Huge has claims against

Telemasters in the amount of R 5.32 million in respect of amounts overcharged by Telemasters, and inclusive of an interest claim of R 1.17 million. Formal legal proceedings have not been instituted by either party against the other.

14



Directors' Report 16. Litigation (continued)

Other litigation

The Company and Group engage in a certain level of litigation in the ordinary course of business. The Board has considered all pending and current litigation and is are of the opinion that, unless specifically provided, none of these matters will result in a loss to the Group. All significant litigation which the Board believes may result in a possible loss has been disclosed.

17. Events after the reporting period

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 the AFS.

15

Huge Group Limited(Registration number 2006/023587/06)Consolidated Annual Financial Statements for the year ended 28 February 2013

Statements of Financial Position as at 28 February 2013Group Company

Figures in Rand Note(s) 2013 2012 2013 2012

Assets

Non-Current Assets

Property, plant and equipment 4 32,489,579 33,025,064 - -

Goodwill 5 215,153,482 215,153,482 - -

Intangible assets 6 3,243,525 15,392,170 - -

Investments in subsidiary companies 7 - - 184,096,863 188,755,422

Investment in joint venture company 8 629,293 562,230 - -

Other financial assets 9 298,630 263,159 298,630 263,159

Deferred tax 10 15,755,915 12,258,656 2,881,489 2,437,565

267,570,424 276,654,761 187,276,982 191,456,146

Current Assets

Other financial assets 9 8,120,747 14,157,102 5,390,485 9,295,981

Inventories 11 5,742,244 9,151,439 4,020,004 3,805,052

Loans to group companies 12 - 199,959 20,288,935 69,849,224

Loans to shareholders 13 - - - 292,005

Current tax receivable 164,404 164,404 - -

Trade and other receivables 14 70,823,341 81,335,887 117,631 119,248

Cash and cash equivalents 15 9,963,189 10,492,136 1,164 50,799

94,813,925 115,500,927 29,818,219 83,412,309

Total Assets 362,384,349 392,155,688 217,095,201 274,868,455

Equity and Liabilities

Equity

Share capital 17 213,361,060 214,404,582 223,578,831 224,553,353

Reserves 18 (1,074,561) (1,074,561) (1,074,561) (1,074,561)

Accumulated profit (loss) 627,759 10,498,923 (16,699,605) 6,513,147

212,914,258 223,828,944 205,804,665 229,991,939

Non-controlling interest 19 (3,139,922) (1,121,496) - -

209,774,336 222,707,448 205,804,665 229,991,939

Liabilities

Non-Current Liabilities

Finance lease obligations 20 308,582 445,550 - -

Deferred tax 10 7,595,942 1,798,081 - -

Provision for losses in associate company 21 - 736,461 - -

7,904,524 2,980,092 - -

Current Liabilities

Loans from group companies 12 - - 5,514,945 36,431,350

Loans from shareholders 13 410,664 2,851,384 219,384 -

Other financial liabilities 22 903,725 2,698,984 - -

Current tax payable - 36,484 - -

Finance lease obligations 20 213,163 294,020 - -

Trade and other payables 23 128,350,547 143,225,968 5,556,207 8,445,166

Bank overdraft 15 14,827,390 17,361,308 - -

144,705,489 166,468,148 11,290,536 44,876,516

Total Liabilities 152,610,013 169,448,240 11,290,536 44,876,516

Total Equity and Liabilities 362,384,349 392,155,688 217,095,201 274,868,455

17


Statements of Comprehensive IncomeGroup Company


Revenue 25 266,321,277 384,030,023 34,157,815 20,589,377

Cost of sales 26 (187,271,686) (309,358,688) (29,894,501) (20,589,376)

Gross profit 79,049,591 74,671,335 4,263,314 1

Other income 27 1,181,983 4,253,833 - 15,087,649

Administration expenses (22,385,319) (16,749,554) (23,374,857) (3,771,188)

Employee costs (47,506,399) (51,504,549) - -

Selling and distribution expenses (3,139,968) (12,795,439) - -

Impairment of intangible assets (8,422,129) - - -

Other expenses - (849,279) - -

Operating (loss) profit 28 (1,222,241) (2,973,653) (19,111,543) 11,316,462

Investment revenue 29 1,311,007 1,452,827 478,591 4,814,727

Net change in fair value of financial instruments 30 (6,076,548) (2,662,602) (4,022,750) (1,712,109)

Income from equity accounted investments 67,063 61,733 - -

Finance costs 31 (3,705,033) (2,501,843) (1,000,974) (38,964)

(Loss) profit before taxation (9,625,752) (6,623,538) (23,656,676) 14,380,116

Taxation 32 (2,263,838) 2,213,040 443,924 (831,382)

(Loss) profit for the year (11,889,590) (4,410,498) (23,212,752) 13,548,734

Total comprehensive (loss) income attributable to:

Owners of the parent (9,871,164) (4,561,807) (23,212,752) 13,548,734

Non-controlling interest (2,018,426) 151,309 - -

(11,889,590) (4,410,498) (23,212,752) 13,548,734

Earnings per share

Per share information

(Loss) earnings per share (c) 33 (11.01) (4.82) - -

Diluted (Loss) earnings per share (c) 33 (11.01) (4.82) - -

18


Statements of Changes in Equity

Figures in Rand

Share capital Share premium Total sharecapital

Revaluationreserve

Reserves forown shares /

sharerepurchase

reserve

Totalreserves

Accumulatedprofit (loss)

Totalattributable toequity holdersof the group /

company

Non-controllinginterest

Total equity

Group

Balance at 1 March 2011 9,590 221,108,366 221,117,956 71,250 (42,362) 28,888 14,330,089 235,476,933 (1,272,805) 234,204,128

Loss for the year - - - - - - (4,561,807) (4,561,807) 151,309 (4,410,498)Total comprehensive loss for the year - - - - - - (4,561,807) (4,561,807) 151,309 (4,410,498)

Purchase of treasury shares (566) (6,712,808) (6,713,374) - - - - (6,713,374) - (6,713,374)Realisation of revaluation reserve afterthe sale of property, plant andequipment

- - - (71,250) - (71,250) 71,250 - - -

Directors' Call Options - - - - (372,808) (372,808) - (372,808) - (372,808)Lapsing of options in Eyeballs - - - - (659,391) (659,391) 659,391 - - -

Total contributions by and distributionsto owners of company recogniseddirectly in equity

(566) (6,712,808) (6,713,374) (71,250) (1,032,199) (1,103,449) 730,641 (7,086,182) - (7,086,182)

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

Loss for the year - - - - - - (9,871,164) (9,871,164) (2,018,426) (11,889,590)Total comprehensive loss for the year - - - - - - (9,871,164) (9,871,164) (2,018,426) (11,889,590)

Purchase of treasury shares (93) (974,429) (974,522) - - - - (974,522) - (974,522)Shares purchased by Huge Telecom (6) (68,994) (69,000) - - - - (69,000) - (69,000)


(99) (1,043,423) (1,043,522) - - - - (1,043,522) - (1,043,522)

Balance at 28 February 2013 8,925 213,352,135 213,361,060 - (1,074,561) (1,074,561) 627,759 212,914,258 (3,139,922) 209,774,336

Note(s) 17 17 17 18 19

19


Statements of Changes in Equity

Figures in Rand

Share capital Share premium Total sharecapital

Revaluationreserve

Reserves forown shares /

sharerepurchase

reserve

Totalreserves

Accumulatedprofit (loss)

Totalattributable toequity holdersof the group /

company

Non-controllinginterest

Total equity

Company

Balance at 1 March 2011 10,555 231,256,172 231,266,727 - (701,754) (701,754) (7,035,587) 223,529,386 - 223,529,386

Profit for the year - - - - - - 13,548,734 13,548,734 - 13,548,734Total comprehensive income for theyear

- - - - - - 13,548,734 13,548,734 - 13,548,734

Purchase of treasury shares (566) (6,712,808) (6,713,374) - - - - (6,713,374) - (6,713,374)First tranche - Directors' Call Options - - - - 350,878 350,878 - 350,878 - 350,878Second tranche - Directors' Call Options - - - - (723,685) (723,685) - (723,685) - (723,685)


(566) (6,712,808) (6,713,374) - (372,807) (372,807) - (7,086,181) - (7,086,181)

Balance at 1 March 2012 9,989 224,543,364 224,553,353 - (1,074,561) (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)

Purchase of treasury shares (93) (974,429) (974,522) - - - - (974,522) - (974,522)


(93) (974,429) (974,522) - - - - (974,522) - (974,522)

Balance at 28 February 2013 9,896 223,568,935 223,578,831 - (1,074,561) (1,074,561) (16,699,605) 205,804,665 - 205,804,665

Note(s) 17 17 17 18 19

20


Statements of Cash FlowsGroup Company


Cash flows from operating activities

Cash generated from operations 34 18,785,275 7,893,976 2,562,427 1,002,074

Interest income 1,055,011 1,271,948 472,595 4,808,848

Dividends received 255,996 180,879 5,996 5,879

Finance costs (3,651,244) (2,501,843) (1,000,974) (38,964)

Tax received 35 279 852,341 - -

Movement in derivative margin (6,076,548) (2,662,602) (4,022,750) (1,712,109)

Net cash from operating activities 10,368,769 5,034,699 (1,982,706) 4,065,728

Cash flows from investing activities

Purchase of property, plant and equipment 4 (1,393,627) (2,137,721) - -

Sale of property, plant and equipment 4 - 3,700,425 - -

Purchase of other intangible assets 6 (1,619,015) (1,516,399) - -

Funds received from group companies 199,959 1,579,125 33,312,609 8,544,443

Funds paid to group companies - (1,212,057) (30,916,405) (11,984,413)

Proceeds from sale of financial assets - 4,900,000 - 100

Net cash from investing activities (2,812,683) 5,313,373 2,396,204 (3,439,870)

Cash flows from financing activities

Repurchase of shares 17 (1,043,522) (6,713,374) (974,522) (6,713,373)

Movement in other financial liabilities (1,795,259) 1,241,959 - -

Advances of shareholders loans - 2,022,626 511,389 -

Repayment of shareholders loans (2,440,720) - - (946,956)

Finance lease payments (271,614) (3,373,663) - -

Exercise of Directors' Call Options - (372,808) - (372,808)

Net cash from financing activities (5,551,115) (7,195,260) (463,133) (8,033,137)

Total cash movement for the year 2,004,971 3,152,812 (49,635) (7,407,279)

Cash at the beginning of the year (6,869,172) (10,021,984) 50,799 7,458,078

Total cash at end of the year 15 (4,864,201) (6,869,172) 1,164 50,799

21


Accounting Policies

1. Presentation of Consolidated Annual Financial Statements and Annual Financial Statements

The AFS have been prepared in accordance with IFRS, its interpretations adopted by the International Accounting Standards Board and inthe manner required by the Companies Act. The AFS have been prepared on the historical cost basis, except for certain financialinstruments which are carried at fair value, and incorporate the principal accounting policies set out below. These AFS are presented inSouth African Rands, which is the functional currency of the Company.

These accounting policies are consistent with the previous period, and are applied consistently across the Group.

Basis of preparation

The AFS have been prepared on the going concern basis, which assumes that the Group, the Company and its subsidiary companies willcontinue 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 arereviewed regularly by the Chief Executive Officer (who is the Chief Operating Decision Maker) to make decisions about resources to beallocated to each operating segment and to assess each operating segment's performance, and for which discrete financial information isavailable.

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

1.2 Consolidation

Basis of consolidation

These AFS incorporate the financial statements of the Company, all of its subsidiary companies, equity-accounted associate companies, anda joint venture company. The AFS present the results of the Company and its subsidiary companies (the Group) as if they formed a singleentity. Intercompany transactions and balances between group companies are eliminated in full. The Company carries in its separatefinancial statements its investments in subsidiary companies at cost less impairment, if any.

Subsidiary companies

Subsidiary companies are entities controlled by the Company. The AFS of the subsidiary companies are included in the group annualfinancial statements 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 adoptedby the Company. Losses applicable to non-controlling interests in a subsidiary company are allocated to the non-controlling interests, evenif doing so causes the non-controlling interests to have a deficit balance. Investments in subsidiary companies are carried at cost lessaccumulated impairment losses in the separate AFS of the Company.

Joint venture companies

The Group’s interest in its joint venture company is accounted for using the equity method of accounting, whereby the interest in thejointly controlled entity is initially recorded at the cost of the investment, including transaction costs, and is adjusted thereafter for postacquisition changes in the Group’s share of net assets of the joint venture company. The profit and loss reflects the Group’s share of theresults of operations of the joint venture.

Associate companies

Associate companies are all entities over which the Group has significant influence, but not control, and generally accompanies ashareholding of between 20% and 50%, or the holding of between 20% and 50% of the voting rights. Investments in associate companies areaccounted for using the equity method of accounting, and are initially recognised at cost. The Group’s investment in associate companiesincludes goodwill (net of any accumulated impairment), and includes transaction costs identified on acquisition.

The Group’s share of its associate company's post acquisition profits or losses is recognised in profit and loss, and its share of postacquisition movements in reserves is recognised in reserves. The cumulative post acquisition movements are adjusted against the carryingamount of the investment. When the Group’s share of losses in an associate company equals or exceeds its interest in the associatecompany, including any other unsecured receivables, the Group does not recognise further losses unless it has incurred obligations or madepayment on behalf of the associate company.

Unrealised gains on transactions between the Group and its associate companies are eliminated to the extent of the Group’s interest in theassociate company. Unrealised losses are eliminated to the extent of the Group’s interest in the associate company unless the transactionprovides evidence of an impairment of the asset that has been transferred. Accounting policies of associate companies have been changedwhere necessary to ensure consistency with the policies adopted by the Group.

22


Accounting Policies

1.2 Consolidation (continued)

When the Group reduces its level of influence or loses significant influence, the Group proportionately reclassifies the related items, whichwere previously accumulated in equity through other comprehensive income, to profit or loss as a reclassification adjustment. In suchcases, if an investment remains that investment is measured at fair value, with the fair value adjustment being recognised in profit or lossas part of the gain or loss on disposal.

Details of consolidations

A listing of the Company’s principal subsidiary companies, associate companies and joint venture company is set out in notes 7, 8 and 21 ofthese AFS.

Business combinations

Acquisitions between 1 March 2004 and 1 March 2010:

For acquisitions that took effect between 1 March 2004 and 1 March 2010, the goodwill of the Group represented the excess of the cost ofthe acquisition over the Company's interest in the recorded amount (generally the fair value) of the identifiable assets, liabilities andcontingent liabilities of the acquiree. When the excess was negative, a bargain purchase gain was recognised immediately as a profit orloss. Transaction costs, other than those associated with the issue of debt or equity securities incurred by the Company in connection withbusiness combinations, were capitalised as part of the acquisition.

An adjustment to the cost of a business combination that was contingent on future events was included in the cost of the combination ifthe adjustment was probable and could be measured reliably.

Subsequent to 1 March 2010:

The Group accounts for business combinations using the acquisition method of accounting. The cost of the business combination ismeasured at the aggregate of the fair values of assets given, liabilities incurred or assumed and equity instruments issued. Costs directlyattributable to the business combination are expensed as incurred.

Contingent consideration is included in the cost of the combination at fair value as at the date of acquisition. Subsequent changes to theassets, liabilities or equity which arise as a result of the contingent consideration do not affect goodwill, unless they are valid measurementperiod adjustments.

The acquiree's identifiable assets, liabilities and contingent liabilities which meet the recognition conditions of IFRS 3 Business combinationsare recognised at their fair values at acquisition date, except for non-current assets that are classified as held-for-sale in accordance withIFRS 5 Non-current assets held-for-sale and discontinued operations, which are recognised at fair value less costs to sell.

Contingent liabilities are only included in the identifiable assets and liabilities of the acquiree where there is a present obligation at theacquisition date.

On acquisition, the Group assesses the classification of the acquiree's assets and liabilities and reclassifies them where the classification isinappropriate for Group purposes. This excludes lease agreements, whose classifications remain the same as those which existed at theirinception.

Non-controlling interests arising from a business combination, which are present ownership interests and entitle their holders to aproportionate share of the entity's net assets in the event of liquidation, are measured either at the present ownership interests'proportionate share in the recognised amounts of the acquiree's identifiable net assets, or at fair value. The treatment is not an accountingpolicy choice but is selected for each individual business combination, and disclosed in the note for business combinations. All othercomponents of non-controlling interests are measured at their acquisition date fair values, unless another measurement basis is required byIFRS.

In cases where the Group held a non-controlling shareholding in the acquiree prior to obtaining control, that interest is measured at fairvalue as at the acquisition date. The measurement at fair value is included in profit or loss for the year. Where the existing shareholdingwas classified as an available-for-sale financial asset, the cumulative fair value adjustments recognised previously to other comprehensiveincome and accumulated in equity are recognised in profit or loss as a reclassification adjustment.

23


Accounting Policies

1.2 Consolidation (continued)

Goodwill

Goodwill is determined as the consideration paid, plus the fair value of any shareholding held prior to obtaining control, plus the non-controlling interest less the fair value of the identifiable assets and liabilities of the acquiree. When the excess is negative, a bargainpurchase 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 ofthe profit or loss on disposal.

1.3 Significant judgements and sources of estimation uncertainty

In preparing the AFS, management is required to make estimates and assumptions that affect the amounts represented in the AFS andrelated disclosures. Use of available information and the application of judgement is inherent in the formation of estimates. Actual resultsin the future could differ from these estimates which may be material to the AFS. Significant judgements include:

Trade receivables and loans and receivables

The Group assesses its trade receivables and loans and receivables for impairment at the end of each reporting period. In determiningwhether an impairment loss should be recorded in profit or loss, the Group makes judgements as to whether there is observable dataindicating a measurable decrease in the estimated future cash flows from a financial asset.

Taxation

Judgement is required in determining the provision for income taxes due to the complexity of legislation. There are many transactions thatare undertaken in the ordinary course of business and calculations for which the ultimate tax determination is uncertain during the ordinarycourse of business. The Group recognises liabilities for anticipated tax based on estimates of whether additional taxes will be due. Wherethe final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the incometax 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 deductibletemporary differences will reverse in the foreseeable future. Assessing the recoverability of deferred income tax assets requires the Groupto make significant estimates related to expectations of future taxable income. Estimates of future taxable income are based on forecastcash flows from operations and the application of existing tax laws in each jurisdiction. To the extent that future cash flows and taxableincome differ significantly from estimates, this may impact the ability of the Group to realise the net deferred tax assets recorded at theend of the reporting period.

Determination of impairment of goodwill

The Group determines annually whether goodwill is subject to impairment. This requires an estimation of the value in use of the CGUs towhich goodwill is allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from theCGUs and also to choose a suitable discount rate in order to calculate the present value of those cash flows. Goodwill impairments cannotbe reversed. Based on the calculations performed, there are no indications that an impairment of goodwill is required at year end. Refer tonote 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 intechnology and customer service requirements, expected physical wear and tear, expected usage of the asset and any legal or similarlimitations on the use of the asset to determine the period over which an item of property, plant and equipment is expected to be availablefor use by the Group. The estimation of the residual values of assets is also based on management’s judgement as to whether the assetswill 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 the impairment of such assets. In theidentification of impairment indicators, management considers the impact of changes in current market conditions, technologicalobsolescence, physical damage, cost of capital and other circumstances that could indicate that impairment exists. Management’sjudgement 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 thefair value less costs to sell and value in use. Fair value less costs to sell is based on the best information available to management thatreflects the amounts that the Group could obtain, at the year end, from the disposal of the asset in an arm’s length transaction betweenmarket participant in its principle market, after deducting the costs of disposal. Key assumptions on which management has based itsdetermination of value in use include projected revenues, gross margins, capital expenditure, expected customer bases and market share.

24


Accounting Policies

1.3 Significant judgements and sources of estimation uncertainty (continued)

Router equipment useful life

During the 2011 financial year, management considered the future useful life of its router equipment, by assessing the current effectivelives of routing equipment still used and in operation at clients. Based on this assessment management determined that the useful life ofrouter equipment is greater than six years and more likely longer than 10 years. On the basis of this change in estimate the expectedfuture useful life of an item of router equipment was increased to 10 years, which resulted in a concomitant reduction in the depreciationcharge in the 2011 and subsequent financial years.

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 identificationof impairment indicators, management considers the impact of changes in current market conditions, technological obsolescence, physicaldamage, the cost of capital and other circumstances that could indicate that impairment exists. Management’s judgement is also requiredwhen 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 thefair value less costs to sell and value in use. Fair value less costs to sell is based on the best information available to management thatreflects the amount that the Group could obtain, at the year end, from the disposal of the asset in an arm’s length transaction with amarket participant in its principle market, after deducting the costs of disposal. Key assumptions on which management has based itsdetermination of value in use include projected revenues, gross margins, capital expenditure, expected customer bases and market share.

Determination the liabilities, trade receivables and inventory subject to dispute

The inventory, trade receivables and trade payables relating to the dispute between MTNSP and Huge Telecom and Huge Mobile arereflected separately in these financial statements in notes 11, 14 and 23 respectively. Management has estimated the amount that they areconfident will be received or paid. The carrying amounts of these assets and liabilities may differ materially within the next financial yeardepending on the outcome of the dispute. Refer to note 42 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 toadd to or replace part of it. If a replacement cost is recognised in the carrying amount of an item of property, plant and equipment, thecarrying 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 estimatedresidual value. When parts of items of property, plant or equipment have different useful lives they are accounted as separate items (majorcomponents) 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 the premises, including anyleasehold improvements existing at the time of termination of the lease. All leasehold improvements are subject to approval by the lessorat the time of concluding the lease.

Items of property, plant and equipment are depreciated on the straight line basis over their expected useful lives to their estimatedresidual value.

25


Accounting Policies

1.4 Property, plant and equipment (continued)

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 futureexpectation differs 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 isderecognised. The gain or loss arising from the derecognition of an item of property, plant and equipment is determined as the differencebetween the net disposal proceeds, if any, and the carrying amount of the item.

1.5 Intangible assets

An intangible asset is recognised when: it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity; and the cost of the asset can be measured reliably.

Intangible assets are initially recognised at cost.

Research and development costs

Expenditure on research (or on the research phase of an internal project) is recognised as an expense when it is incurred.

An intangible asset arising from development (or from the development phase of an internal project) is recognised when: it is technically feasible to complete the asset so that it will be available for use or sale; there is an intention to complete and use or sell it; there is an ability to use or sell it; it will generate probable future economic benefits; technical, financial and other resources are available to complete the development and to use or sell the asset; and the expenditure attributable to the asset during its development can be measured reliably.

Research expenditure is recognised in profit or loss as incurred. Other development expenditures that do not meet these criteria arerecognised as an expense as incurred. Development costs previously recognised in profit or loss are not recognised as an asset in asubsequent period. Direct costs include product development, employee costs, and an appropriate portion of relevant overheads. Costsassociated with the maintenance of existing products and expenditure or the concept and design of possible new or improved products arewritten off in the year in which they are incurred.

Following the initial recognition of the development expenditure, the cost model is applied requiring the asset to be carried at cost less anyaccumulated amortisation and accumulated impairment. Amortisation of the asset begins when development is complete and the asset isavailable for use. It is amortised over the period of expected future benefits. During the period of development, the asset is tested forimpairment annually. Impairment tests are carried out on intangible assets that are not yet available for use annually or more frequentlywhen an indication of impairment arises during the reporting year.

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and thecarrying value of the asset and are recognised in profit and loss when the asset is derecognised.

Trademarks

Trademarks are initially recognised at cost. Trademarks have a finite useful life and are subsequently carried at cost less accumulatedamortisation. Amortisation is calculated using the straight line method to allocate the cost of a trademark over its estimated useful life of 5years.

26


Accounting Policies

1.5 Intangible assets (continued)

Subsequent expenditure

Subsequent expenditure is capitalised only when it increases economic benefits embodied in the specific asset to which it relates. All otherexpenditure is expensed when incurred.

Intangible assets are carried at cost less any accumulated amortisation and any impairment losses.

An intangible asset is regarded as having an indefinite useful life when, based on all relevant factors, there is no foreseeable limit to theperiod over which the asset is expected to generate net cash inflows. Amortisation is not provided for these intangible assets, but they aretested for impairment annually and whenever there is an indication that the asset may be impaired. For all other intangible assetsamortisation is provided on a straight line basis over their useful life.

The amortisation period and the amortisation method for intangible assets are reviewed at the end of every period.

Amortisation is provided to write down the intangible assets, on a straight line basis, to their residual values as follows:

Item Useful lifePatents and other rights 20 years from the date of the first granting of the patentComputer software, internally generated 3-5 yearsComputer software, purchased 3 yearsCustomer base 2 yearsEyeballs technology 5 yearsTrademarks 5 years

The patents are currently in a pending status and remain so for so long as the annual renewal fee is paid. Once the patent has beengranted, it will be valid for twenty years from the date of first grant.

1.6 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.Classification is re-assessed on an annual basis, except for derivative contracts and financial assets designated as at fair value through profitor loss, which may not be classified out of the fair value through profit or loss category.

Initial recognition and measurement

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

The Group classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial liability or anequity instrument in accordance with the substance of the contractual arrangement.

Financial instruments are measured initially at fair value.

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

27


Accounting Policies

1.6 Financial instruments (continued)

Derecognition

Derecognition of financial instruments occurs when the Group no longer controls the contractual rights relating to the financial instrumentin question, which is normally the case when the instrument is sold, or all the cash flows attributable to the instrument are passed throughto an independent third party.

The Group derecognises a financial liability when its contractual obligations are extinguished, cancelled or expire.

All financial assets except for those held at fair value through profit or loss are subject to review for impairment at least at each reportingdate. Financial assets are impaired when there is objective evidence that a financial asset or a group of financial assets is impaired.

Different criteria to determine impairment are applied for each category of financial assets, which are described below in note 1.10.

Fair value determination

The best evidence of fair value on initial recognition is the transaction price, unless the fair value is evidenced by comparison with otherobservable current market transactions of the same instrument or based on discounted cash flow models and option pricing valuationtechniques whose variables include only data from observable markets. Subsequent to initial recognition, the fair values of quoted financialassets are based on current bid prices. If the market for a financial asset is not active (as for unlisted securities), the Group establishes fairvalue by using valuation techniques. These include the use of recent arm's length transactions, reference to other instruments that aresubstantially the same, discounted cash flow analysis and option pricing models refined to reflect the issuer's specific circumstances.

Trade and other receivables and loans receivable

Trade receivables, other receivables and loans receivable are measured at initial recognition at fair value, and are subsequently measuredat amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised inprofit or loss when there is objective evidence that the asset is impaired. Significant financial difficulties of the debtor, probability that thedebtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that a tradereceivable may be impaired. The allowance recognised is measured as the difference between the asset’s carrying amount and the presentvalue 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 orloss within operating expenses. When a trade receivable is uncollectable, it is written off against the allowance account for tradereceivables. 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.

Trade and other payables, loans payable and other financial liabilities

Financial liabilities include trade and other payables, loans, payables and bank overdrafts. These financial liabilities are recognised initiallyat fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured atamortised 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 readilyconvertible to a known amount of cash and are subject to an insignificant risk of change in value. These are initially recorded at fair valueand subsequently measured at amortised cost.

Derivative financial instruments

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

Changes in the fair value of derivative financial instruments are recognised in profit or loss as they arise.

Derivative financial instruments, held for trading, are classified as financial assets 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 positionwhen 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 liabilitysimultaneously.

Loans payable and other financial liabilities are classified as current liabilities unless the Group has an unconditional right to defersettlement of the liability for at least 12 months after the reporting date.

28


Accounting Policies

1.6 Financial instruments (continued)

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, financeincome or financial items, with the exception of the impairment of trade receivables which is presented within other expenses.

Single Stock Futures and Contracts For Difference

The Company is a party to SSF contracts in terms of which the underlying shares are its own ordinary shares. The SSF contracts are listedand traded on the JSE’s Derivatives Market. The terms of the SSF contracts are such that, on expiry, the purchaser is required to pay theagreed forward price for the underlying shares and the seller is required to deliver the underlying shares.

IFRS require that contracts of this nature – derivative contracts requiring settlement in a fixed number of an entity’s own shares for a fixedamount of cash – be treated as equity instruments. Derivative contracts with identical features but instead requiring both parties to settlein cash rather than physical settlement in shares are treated as financial liabilities and not equity instruments. The basis for this differencein accounting treatment is that where physical settlement may or will occur (e.g. forwards or options), it is expected that the entity willrepurchase its own equity instruments, and the underlying principle is that a transaction in which an entity either purchases or issues itsown shares should not result in a gain or a loss but should result in either an increase or decrease in equity.

In the particular circumstances facing the company, the transactions giving rise to the SSF transactions were the subject of an investigationby the JSE. This fact was reported in past financial periods.

The Company, in concert with other affected parties to the SSF contracts, has, since 2008, rolled the SSF contracts on no less than 13occasions as they have reached the maturity date. Rolling the SSF contracts requires the agreement of both parties to the SSF contracts andon a practical level essentially represents new contracts each time, with the parties re-establishing the positions as set out in the precedingcontracts. It is the intention of the board of directors to continue to pursue this strategy for the foreseeable future.

Therefore, at the date of preparing these financial statements, and the financial statements of prior periods, the Board is, and was, facedwith a situation in terms of which the contractual terms of the SSF contracts would, under typical circumstances, require the SSF contractsto be recognised as equity instruments. At the same time the JSE has argued that the Company did not have the authority, in terms of theJSE’s LR, to acquire the SSF contracts and thereby take delivery of the underlying shares. Accordingly, the Company is not in a position totake delivery of the underlying shares on expiry of the SSF contracts. In recognition of this constraint (together with its stated strategicintent regarding its involvement in such contracts) and in concert with the other parties to the SSF contracts, the Company has altered thenature of the agreement from one requiring physical settlement at the stated date of each SSF contract, to one with indefinite roll oversand effectively daily cash settlement – in other words more like a CFD than a vanilla SSF.

Under these very peculiar circumstances the Company has had to consider what accounting treatment under IFRS would result in fairpresentation and it is the view of the Board that treatment as a derivative financial instrument i.e. as a liability, instead of accounting forthe transaction as an equity instrument, is required.

The Conceptual Framework (the Framework) and IAS 32 itself specifically require that transactions be accounted for in accordance with therequirements of IFRS and their economic substance. The Framework considers that in most circumstances the legal form of a transactionand its economic substance would be consistent; however there are occasions where this may not be the case and it is clear that theeconomic substance would supersede such circumstances.

It is the view of the Board that IAS 32 does not contain guidance specific to the circumstances of the Company and IFRS itself requires thatsubstance over form be the basis of accounting. The Board is therefore of the view that whilst IAS 32 confirms the principle for theaccounting treatment of forward contracts, it lacks the detailed guidance to be applied to these circumstances and accordingly, the Boardhas chosen to apply IAS 8 in developing an appropriate accounting policy – as is required by IFRS.

The Board, in applying its judgement in developing an appropriate accounting policy, considered that accounting for this specific SSFtransaction as a cash settled transaction and the resultant recognition of a financial instrument (and not an equity instrument) meets therequirements of providing information that is reliable and relevant to users of the financial statements. It therefore is applying anaccounting treatment consistent with that adopted for CFDs (to which the Group has exposure) for the reasons stated above and not on thebasis that in a sterile situation these instruments should be accounted as equity instruments.

It should be noted that an accounting policy not only considers matters of recognition and measurement (the subject of the abovediscussion) but also considers the required presentation and disclosure matters which support and amplify the appropriate accounting policyand which are not intended as a substitute for the appropriate accounting. The Board believe that the disclosures relating to the SSFtransactions do indeed amplify and explain the complexities involved in these transactions.

29


Accounting Policies

1.7 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 currentand 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) thetax 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 fromthe initial recognition of an asset or liability in a transaction which, at the time of the transaction, affects neither accounting profit nortaxable profit (tax loss).

A deferred tax asset is recognised for all deductible temporary differences to the extent that it is probable that taxable profit will beavailable against which the deductible temporary difference can be utilised. A deferred tax asset is not recognised when it arises from theinitial recognition of an asset or liability in a transaction which, at the time of the transaction, affects neither accounting profit nortaxable 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 willbe 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 theliability 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 except to the extent that it relates to a transaction that is recogniseddirectly in equity, or forms part of a business combination. The effect on deferred taxation of any changes in the tax rates is recognised inprofit or loss, except to the extent that it relates to items previously charged or credited directly to equity. Deferred income tax assets anddeferred income tax liabilities are offset if a legally enforceable right exists to set off income tax assets against income tax liabilities andprovided 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.

Tax expenses

Current and deferred taxes are recognised as income or an expense and included in profit or loss for the period, except to the extent thatthe tax arises from:

a transaction or event which is recognised, in the same or a different period, to other comprehensive income, or a business combination.

Current tax and deferred taxes are charged or credited directly to equity if the tax relates to items that are credited or charged, in thesame or a different period, directly to equity.

1.8 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 anoperating lease if it does not transfer substantially all the risks and rewards incidental to ownership.

Finance leases – lessee

Finance leases are recognised as assets and liabilities in the statement of financial position at amounts equal to the fair value of the leasedproperty or, if lower, the present value of the minimum lease payments. The corresponding liability to the lessor is included in thestatement of financial position as a finance lease obligation. Each lease payment is allocated between the liability and finance costs usingthe effective interest method. Finance costs are charged to profit or loss over the lease period.

Subsequent to initial recognition, the asset is accounted in accordance with the accounting policy applicable to the asset.

Operating leases – lessee

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

1.9 Inventories

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

30


Accounting Policies

1.9 Inventories (continued)

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

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

1.10 Impairment of assets

At each reporting date, the Group assesses whether there is any indication that an asset may be impaired. If any such indication exists, theGroup estimates the recoverable amount of the asset.

If it is not possible to estimate the recoverable amount of the individual asset, the recoverable amount of the CGU to which the assetbelongs, 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 recoverableamount. 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 areexpected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assignedto 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 ismonitored for internal management purposes, and is not larger than an operating segment as defined by paragraph 5 of IFRS 8 OperatingSegments, 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. Theimpairment 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.

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

The increased carrying amount of an asset other than goodwill attributable to a reversal of an impairment loss does not exceed the carryingamount 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 recognisedimmediately in profit or loss.

1.11 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. Anytransaction cost associated with the issuing of shares is deducted from share premium, net of any related income tax benefit.

The share option reserve previously disclosed within equity related to an option issued in 2009 by Huge to a trust of a director of Eyeballs(‘the Eyeballs Option”) and call options held against directors and past directors purchased by the Company in 2010 and 2011 (“theDirectors’ Options”) and accounted for as equity settled share based payments. The Eyeballs Option lapsed at 17h00 on 29 February 2012,and for this reason this share option reserve in the Statement of Changes in Equity was released through retained earnings.

There were no options granted during the year.

Retained earnings include all current and prior period retained profits.

31


Accounting Policies

1.11 Share capital and equity (continued)

Treasury shares

Ordinary par value shares in Huge held by a subsidiary company are treated as treasury shares on consolidation. These shares are treated asa deduction from the issued and weighted average numbers of shares in issue, and the cost price of the shares is deducted from sharecapital and share premium in the statement of financial position, on consolidation. Dividends received on treasury shares are eliminated onconsolidation.

1.12 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 andsick leave, bonuses, and non-monetary benefits such as medical care), are recognised in the period in which the services are rendered andare not discounted.

The expected cost of profit sharing and bonus payments is recognised as an expense when there is a legal or constructive obligation tomake 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 aseparate entity (a fund), and which will entail no further legal or constructive obligations to pay additional contributions if the fund doesnot hold sufficient assets to pay all employee benefits relating to employee services in the current and prior periods. Contributions todefined contribution plans in respect of services rendered during a period are recognised as an employee benefit expense when they aredue. The Group does not have any defined benefit plans.

1.13 Revenue

Revenue from the sale of telecommunication services and airtime in the course of ordinary activities is measured at the fair value of theconsideration received or receivable, net of trade discounts and volume rebates. Revenue is recognised when airtime is used and when therecovery of the consideration is probable and when the amount of revenue can be measured reliably. If it is probable that discounts will begranted and the amount can be measured reliably, then the discount is recognised as a reduction of revenue as the sale is recognised.

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

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

1.14 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 revenueis recognised.

The related cost of providing services recognised as revenue in the current period is included in cost of sales.

1.15 Earnings per share and headline earnings per share

The Group presents earnings per share (EPS), diluted EPS and headline earnings per share (HEPS) data in relation to its ordinary par valueshares. EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Group by the weighted average number ofordinary shares outstanding during the period, adjusted for treasury shares held. Diluted EPS is determined by dividing the profit or lossattributable to ordinary shareholders of the Group by the weighted average number of ordinary shares outstanding adjusted for treasuryshares held and for the effects of all potential ordinary par value 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-tradingnature, divided by the weighted average number of ordinary shares in issue during the year. The presentation of headline earnings is not anIFRS requirement, but is required by the JSE and Circular 3 of 2009. An itemised reconciliation of the adjustments to net profit attributableto equity holders of the parent is provided in note 33.

1.16 Borrowing costs

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

32


Notes to the Consolidated Annual Financial StatementsGroup Company

Figures in Rand 2013 2012 2013 2012

2. New Standards and Interpretations

2.1 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 financialyear and that are relevant to its operations:

Standard / Interpretation: Effective date:Years beginning on or after

IAS 1 Presentation of Financial Statements 01 July 2012

2.2 Standards and interpretations not yet effective

The Group has chosen not to early adopt the following standards and interpretations, which have been published and are mandatoryfor the Group’s accounting periods beginning on or after 01 March 2013 or later periods:

Standard/ Interpretation: Effective date:Years beginning on or after

IFRS 9 Financial Instruments 01 January 2015

IFRS 10 Consolidated Financial Statements 01 January 2013

IAS 27 Separate Financial Statements 01 January 2013

IFRS 11 Joint Arrangements 01 January 2013

IFRS 12 Disclosure of Interests in Other Entities 01 January 2013

IFRS 13 Fair Value Measurement 01 January 2013

Offsetting Financial Assets and Financial Liabilities (Amendmentsto IAS 32)

01 January 2014

IFRS 1 – Annual Improvements for 2009 – 2011 cycle 01 January 2013

IAS 1 – Annual Improvements for 2009 – 2011 cycle 01 January 2013




Adoption of the above standards will not affect the financial position or results of the Company but additional disclosure may be required.

3. Segmental information

The directors have considered the implications of IFRS 8: Operating segments and are of the opinion that the current operations of thegroup can be split into two main operating segments, namely a Telecom Grouping (including Huge Telecom and Huge Mobile) and a Media,Technology and Software (MTS) Grouping (including Huge Software and Eyeballs). The operations within each of these main segments aresubstantially similar to one another and the risk and returns of these operations are likewise similar. Resource allocation and managementof the current operations are performed on an aggregate basis within each of the two main segments. Performance is measured and basedon segmental profit/loss before tax as shown in internal management reports that are reviewed by the group's Chief Executive Officer(CEO), the Chief Operating Decision Maker (CODM).

Eyeballs is still in the start up/development phase of its business. Future revenues are uncertain, and as a result the software developmentcosts incurred by the company have been fully impaired in 2013.

33



Figures in Rand 2013 2012 2013 2012

2013 TelecomGrouping

MTSGrouping

CorporateOffice

Total

Total revenue 266,146,277 175,000 - 266,321,277Cost of sales (187,267,185) (4,500) - (187,271,685)

Gross profit 78,879,092 170,500 - 79,049,592Other income 1,181,982 - - 1,181,982Administration expenses (17,041,793) (4,293,684) (1,049,842) (22,385,319)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 - at company level - (5,211,270) - (5,211,270)Impairment of Eyeballs Intangible - at consolidation level - (3,210,859) - (3,210,859)

Operating profit (loss) 15,115,237 (13,868,767) (2,468,711) (1,222,241)Investment income 832,416 - 478,591 1,311,007Net change in fair value of financial instruments (2,053,798) - (4,022,750) (6,076,548)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 11,285,462 (13,897,370) (7,013,844) (9,625,752)Income tax (4,062,994) 2,243,080 (443,924) (2,263,838)

Profit (loss) after income tax 7,222,468 (11,654,290) (7,457,768) (11,889,590)

2012 TelecomGrouping

MTSGrouping

CorporateOffice

Total

Total revenue 383,690,842 339,181 - 384,030,023Cost of sales (309,303,810) (54,878) - (309,358,688)

Gross profit 74,387,032 284,303 - 74,671,335Other income 4,025,111 73,835 154,887 4,253,833Operating expenses (72,563,093) (3,929,340) (5,406,388) (81,898,821)

Operating profit (loss) 5,849,050 (3,571,202) (5,251,501) (2,973,653)Investment income 1,021,915 - 430,912 1,452,827Net change in fair value of financial instruments (950,493) - (1,712,109) (2,662,602)Profit from equity accounted investments 61,733 - - 61,733Finance costs (2,239,058) (223,821) (38,964) (2,501,843)

Profit (loss) before income tax 3,743,147 (3,795,023) (6,571,662) (6,623,538)Income tax 2,496,025 548,396 (831,381) 2,213,040

Profit (loss) after income tax 6,239,172 (3,246,627) (7,403,043) (4,410,498)

Assets and liabilities - 2013 TelecomGrouping

MTSGrouping

CorporateOffice

Total

Non-current assets 259,364,513 5,025,793 3,180,119 267,570,425Current assets 84,722,689 756,098 9,335,138 94,813,925

344,087,202 5,781,891 12,515,257 362,384,350

Non-current liabilities (7,904,524) - - (7,904,524)Current liabilities (138,529,806) (594,066) (5,581,617) (144,705,489)

(146,434,330) (594,066) (5,581,617) (152,610,013)

Assets and liabilities - 2012 TelecomGrouping

MTSGrouping

CorporateOffice

Total

Non-current assets 261,228,963 12,725,124 2,700,674 276,654,761Current assets 102,021,368 208,480 13,271,079 115,500,927

363,250,331 12,933,604 15,971,753 392,155,688

Non-current liabilities (1,182,011) (1,798,081) - (2,980,092)Current liabilities (141,594,315) (603,684) (24,270,149) (166,468,148)

(142,776,326) (2,401,765) (24,270,149) (169,448,240)

34



Figures in Rand 2013 2012 2013 2012

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

The Company provides the central corporate office function.

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

4. Property, plant and equipment - Group

2013 2012

Cost Accumulateddepreciation

Carrying value Cost Accumulateddepreciation

Carrying value

Plant and machinery 220,983 (191,579) 29,404 220,983 (169,541) 51,442Furniture and fixtures 1,153,773 (928,022) 225,751 1,072,964 (736,249) 336,715Motor vehicles 1,747,371 (1,022,461) 724,910 1,747,371 (754,947) 992,424Office equipment 823,758 (459,562) 364,196 1,208,041 (598,146) 609,895IT equipment 6,114,218 (5,093,783) 1,020,435 6,635,030 (5,395,412) 1,239,618Leasehold improvements 289,901 (150,106) 139,795 186,161 (76,584) 109,577Router equipment 58,785,113 (28,800,025) 29,985,088 57,811,821 (28,126,428) 29,685,393

Total 69,135,117 (36,645,538) 32,489,579 68,882,371 (35,857,307) 33,025,064

Reconciliation of property, plant and equipment - 2013

Openingcarrying value

Additions Depreciation Impairment loss Closing carryingvalue

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

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

Reconciliation of property, plant and equipment - 2012


Additions Disposals Depreciation Closing carryingvalue

Land 1,926,185 - (1,926,185) - -Buildings 2,973,815 - (2,973,815) - -Plant and machinery 169,462 - (88,847) (29,173) 51,442Furniture and fixtures 515,385 16,083 (8,516) (186,237) 336,715Motor vehicles 648,832 905,063 (290,105) (271,366) 992,424Office equipment 75,064 674,575 - (139,744) 609,895IT equipment 2,002,788 209,781 - (972,951) 1,239,618Leasehold improvements 471,783 46,640 (249,659) (159,187) 109,577Router equipment 30,117,877 285,579 - (718,063) 29,685,393

Total 38,901,191 2,137,721 (5,537,127) (2,476,721) 33,025,064

Encumbered assets

Five (2012: Five) light commercial vehicles with a carrying value of R 497 070 (2012: R 583 468) serve as security for instalment saleagreements concluded with Wesbank Limited.

35



Figures in Rand 2013 2012 2013 2012

5. Goodwill - Group

2013 2012

Cost Accumulatedimpairment

Carrying value Cost Accumulatedimpairment

Carrying 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 15 February 2008. Thesebusinesses are measured and viewed as one single 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 wasrequired.

The recoverable amount or value in use was determined by discounting the future cash flows generated by the Telecom CGU consisting ofHuge Telecom and Huge Mobile. The value of the goodwill attributable to this CGU is R 233 199 000 (2012: R 214 567 000).

The assumptions used in computing the value in use were as follows and were based on external sources of information:• revenue growth rate of 8.5% for the year to 28 February 2014 and an average growth rate of 7.5% for the financial years 2015 -

2018; • operating costs increasing at the growth rate of 6.5% for the 2014 financial year, and constant at 6.5% for the financial years

2015 - 2018;• a pre tax discount rate of 15.6%; and• a terminal growth rate of 5%.

While the value in use calculation demonstrates no impairment at year end, the calculation is particularly sensitive to the following inputs(assuming all others remain constant):• an increase in the weighted average cost of capital;• 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 Board has considered the value of goodwill recognised by Huge on the original acquisition of Huge Telecom and Huge Mobile (theGoodwill) and has concluded that no impairment to the Goodwill is considered necessary given the following factors:

Huge Telecom and Huge Mobile (Huge T & M) were originally formed to take advantage of a price arbitrage between the cost to anordinary client of making a telephone call to a mobile destination using the services of Telkom and the cost of making the sametelephone call using the services of MNOs in the retail telephony services market. This price arbitrage was initially a 40% priceadvantage and was passed on by the likes of Huge T & M to its clients on the date on which a client commenced utilising Huge T &M’s telephony services;

In order to deliver its telephony services to its clients, Huge T & M adopted a commercial business model called LCR. LCR involvedthe subscription by Huge T & M, as an ordinary retail consumer, for retail mobile packages from the respective MNOs;

Due to its bulk buying power Huge T & M was able to secure bulk discounts and other incentives (in the form of CIBs and marketingincentives) from the MNOs in respect of the retail subscription based mobile packages purchased from the MNOs and sold to itsclients;

It was these discounts and incentives that generated the gross profit, net profit and cash flows of Huge T & M and ultimatelysupported the valuation of the Goodwill;

In July 2010 the major MNOs ceased paying CIBs. The management of Huge T & M (Management) considered this a potentialindicator of the impairment of the Goodwill (the CIB Impairment Indicator);

As early as April 2008 Management and the Board started giving due consideration to the medium and long-term sustainability ofthe business model adopted by Huge T & M in operating in its chosen market; LCR was considered generally at the time to beunsustainable given that it was a retail-price-less-discount business model (the Retail Risk) and catered for only part of Huge T &M’s client base’s total needs (the Service Risk);

36



Figures in Rand 2013 2012 2013 2012

5. Goodwill - Group (continued)

Because LCR was borne out of a retail arbitrage relating to mobile terminated telephone calls (in other words outbound mobiletelephone calls) only, it inherently exhibited the Service Risk - given that only one sixth (or at best one quarter) of the telephonyservices used by the clients of Huge T & M were being provided by it; the other five sixths (or at best the other three quarters) ofthe telephony services, which include outbound international, national and local telephone calls, and inbound international,mobile, national and local telephone calls, were being provided by Telkom (the Foregone Destinations);

At the time, Management and the Board also considered the medium and long-term sustainability of the technology model of FCRused by the LCR business model to deliver the ‘last-mile’ of the telephony services that Huge T & M was providing and comparedthe sustainability and economic viability of this last-mile technology solution against other technology solutions, such as VoIP, overTelkom’s legacy fixed-line infrastructure, touted by many industry commentators as a solution for use in providing the last-milefor all telephony services;

After due consideration Management and the Board concluded that the cost-benefit ratio of using FCR technology to deliver thelast-mile for telephony services far outweighed the cost-benefit ratio of switching to VoIP technology, using Telkom’s legacyfixed-line infrastructure, to deliver the last - mile for telephony services;

From as early as 2008, Management and the Board saw the benefits of embarking on a strategy of eliminating the Retail Risk bysecuring a wholesale agreement that would see it acquire wholesale last-mile services from one or more of the MNOs for use inproviding telephony services to the clients of Huge T & M; In February 2011 Management concluded such an agreement (theWholesale Advantage);

In obtaining the Wholesale Advantage, Huge T & M is able to offer a full suite of telephony services, including the ForegoneDestinations;

Management and the Board estimate that the Foregone Destinations are equal to, at worst, three times the existing servicesprovided by Huge T & M (measured in minutes), and at best, equal to five time the existing services provided by Huge T & M(measured in minutes) (the Service Multiplier);

As a result of the regulatory changes to termination rates the wholesale input costs of Telkom, taken into account when pricingtelephony services to mobile destinations, started decreasing, allowing Telkom to reduce its mobile telephony prices to themarket;

Between August and November 2011, Telkom aggressively targeted the upper segment of the telephony services market - definedby Huge T & M as clients spending more than R100 000 per month on telephony services - by substantially reducing prices fortelephony services to mobile destinations;

Management and the Board considered strategies to combat the loss of revenue from clients in the upper segment of the marketmoving to Telkom (Upper Segment Churn), including matching prices for Telkom’s telephony services to mobile destinations, andconcluded that the retention of the upper segment at ever reducing profit margins and at any cost was futile;

Management and the Board considered the impact of Upper Segment Churn on revenue (the Revenue Impact) for the 2013financial year and concluded that the Revenue Impact, although short-term in nature, was still a potential indicator of animpairment of the Goodwill (the Churn Impairment Indicator);

Management and the Board considered the CIB Impairment Indicator and the Churn Impairment Indicator (Indicators) and concludethat the Service Multiplier more than mitigated the impact of the Indicators.

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

37



Figures in Rand 2013 2012 2013 2012

6. Intangible assets - Group

2013 2012

Cost Accumulatedamortisation

Carrying value Cost Accumulatedamortisation

Carrying value

Trademarks and other rights 105,873 (47,270) 58,603 102,368 (50,136) 52,232Computer software, internallygenerated

10,060,414 (7,635,868) 2,424,546 11,331,674 (3,612,987) 7,718,687

Computer software, purchased 2,373,622 (1,781,895) 591,727 3,547,713 (2,510,251) 1,037,462Customer base and patents 168,649 - 168,649 1,275,007 (1,112,937) 162,070Eyeballs technology - - - 16,054,297 (9,632,578) 6,421,719

Total 12,708,558 (9,465,033) 3,243,525 32,311,059 (16,918,889) 15,392,170

Reconciliation of intangible assets - 2013


Additions Transfers Amortisation Impairment loss Closing carryingvalue

Trademarks and other rights 52,232 6,371 - - - 58,603Computer software, internallygenerated

7,718,687 1,497,512 319,000 (1,899,383) (5,211,270) 2,424,546

Computer 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

Reconciliation of intangible assets - 2012


Additions Disposals Amortisation Closing carryingvalue

Trademarks and other rights 99,504 - - (47,272) 52,232Computer software, internally generated 7,612,817 1,491,525 - (1,385,655) 7,718,687Computer software, purchased 1,378,208 7,708 (23,611) (324,843) 1,037,462Customer base and patents 245,256 17,166 - (100,352) 162,070Eyeballs technology 8,380,277 - - (1,958,558) 6,421,719

17,716,062 1,516,399 (23,611) (3,816,680) 15,392,170

Eyeballs Technology

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

This asset belongs to the MTS Grouping segment.

7. Investments in subsidiary companies - Company

Name of company Held by % holding2013

% holding2012

Carryingamount 2013

Carryingamount 2012

Huge Mobile Huge %100.00 %100.00 69,411,943 69,411,943Eyeballs Huge %77.00 %77.00 6,000,000 6,000,000Huge Software Huge %100.00 %100.00 100 100Huge Telecom Huge %100.00 %100.00 113,343,379 113,343,379

188,755,422 188,755,422Impairment of investment in subsidiary companies (4,658,559) -

184,096,863 188,755,422

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

The investment in Eyeballs has been impaired by R 4 658 559 (2012: Rnil).

38



Figures in Rand 2013 2012 2013 2012

7. Investments in subsidiary companies - Company (continued)

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 arepledged and ceded as continuing general covering collateral security for the payment and performance of the obligations of Huge Telecomand Huge Mobile to Vodacom.

Net asset value of companies with restrictionsHuge Mobile (4,589,297) (2,413,260)Huge Telecom 1,361,678 (2,790,218)

(3,227,619) (5,203,478)

8. Investment in joint venture company - Group


% holding2012

Carryingamount 2013

Carryingamount 2012

Gonondo Huge Telecom %50.00 %50.00 629,293 562,230

Fair valueThe movement in the carrying amount of the investment in the joint venture company is as follows:Opening balance 562,230 387,558 - -Share of retained earnings 67,063 174,672 - -

Closing balance 629,293 562,230 - -

The Group's share of earnings in the joint venture company is made up as follows:Profit from the joint venture company 317,063 349,672 - -Dividends received (250,000) (175,000) - -

Share of retained earnings from the joint venture company 67,063 174,672 - -

Summary of Group's interest in joint venture company

Statement of financial positionNon-current assets 152,487 191,521 - -Current assets 351,617 682,352 - -Long-term liabilities - non-interest bearing (42,696) (53,293) - -Current liabilities - non-interest bearing (40,967) (34,264) - -Equity 420,441 786,316 - -

Statement of comprehensive incomeRevenue 1,452,829 1,699,500 - -Other expenses (1,237,042) (1,122,332) - -Depreciation on property, plant and equipment (1,187) (15,274) - -Amortisation of intangible assets (37,847) (37,847) - -Investment income 19,254 11,471 - -Income tax expense (61,882) (184,734) - -Profit for the year 134,125 350,784 - -

Statement of cash flowsCash generated by operating activities 197,521 378,342 - -Cash flows from financing activities (500,000) (350,000) - -Net cash inflow/(outflow) (302,479) 28,342 - -

39



Figures in Rand 2013 2012 2013 2012

9. Other financial assets

At fair value through profit or loss

Listed shares

235 142 Ordinary shares in Jasco Limited were valuedbased on the last price at which the share traded onthe JSE.

Derivative margin deposits

298,630 263,159 298,630 263,159

SSFs - margin deposits 5,631,149 2,815,925 5,390,485 9,295,981CFDs - margin deposits 2,489,598 11,341,177 - -

8,419,377 14,420,261 5,689,115 9,559,140

Non-current assetsAt fair value through profit or loss 298,630 263,159 298,630 263,159

Current assetsAt fair value through profit or loss 8,120,747 14,157,102 5,390,485 9,295,981

8,419,377 14,420,261 5,689,115 9,559,140

10. Deferred tax

Deferred tax asset

Deferred tax asset 15,755,915 12,258,656 2,881,489 2,437,565Deferred tax liability (7,595,942) (1,798,081) - -

8,159,973 10,460,575 2,881,489 2,437,565

Reconciliation of deferred tax asset (liability)

At beginning of the year 10,460,575 8,125,340 2,437,565 3,268,947Included in income tax expense (2,263,837) 2,298,524 443,924 (831,382)Included in other comprehensive income 424,189 - - -Other (460,954) 36,711 - -

8,159,973 10,460,575 2,881,489 2,437,565

Composition of deferred taxTax losses available for set-off against future taxable income 15,180,863 18,325,369 2,965,105 2,437,565Prepaid expenses - (75,062) - -Amounts received in advance - 696,263 - -Allowance for doubtful debts 313,787 713,342 - -Accrual for leave pay 254,357 359,526 - -Revaluation of land and buildings - 566,689 - -Property, plant and equipment (7,512,326) (8,327,472) - -Intangible assets - (1,798,080) - -Finance leases 6,908 - - -Investment in Jasco Limited (83,616) - (83,616) -

8,159,973 10,460,575 2,881,489 2,437,565

Recognition of deferred tax asset

A deferred tax asset has been raised on assessed tax losses based on conservative forecast of future taxable income. The directors aresatisfied that the deferred tax asset will be recovered.

40



Figures in Rand 2013 2012 2013 2012

11. Inventories

Airtime 5,742,244 9,151,439 4,020,004 3,805,052

12. Loans to (from) Group companies

Subsidiary companies

Huge Telecom

The loan is unsecured, interest free and has no fixedterms of repayment.

- - (5,514,945) (36,431,350)

Eyeballs

The loan is unsecured,interest free, and has beensubordinated by the Company.

- - 20,926,231 20,085,518

Huge Cellular

The loan was unsecured, interest free and had noterms of repayment.

- - - 1,509,000

Huge Software

The loan is unsecured, interest free and has beensubordinated by the Company.

- - 14,208,992 6,694,906

Huge Mobile

The loan is unsecured, interest free and wassubordinated by the Company in the prior year. Thereare no fixed terms of repayment relating to the loan inthe current year and there is no intention to recall itin the next 12 months.

- - 1,401,392 41,559,800

- - 31,021,670 33,417,874Impairment of loan to Eyeballs - - (16,247,680) -

- - 14,773,990 33,417,874

Associate company

MVS

The loan was unsecured, bore interest at the primeoverdraft rate and had no fixed terms of repayment.The loan was subordinated by the Company in the prioryear.

- 199,958 - -

Current assets - 199,959 20,288,935 69,849,224Current liabilities - - (5,514,945) (36,431,350)

- 199,959 14,773,990 33,417,874

41



Figures in Rand 2013 2012 2013 2012

13. Loans to (from) shareholders

Anton Daniel Potgieter

The loan is unsecured and bears interest at a rate of4% above the prime overdraft rate.

A significant portion of the loan was repaid during 2012The loan is subordinated to FirstRand Bank as disclosedin note 15. The loan cannot be repaid without theconsent of FirstRand Bank.

The subordination agreement with FirstRand Bankallowed the repayment of Anton Daniel Potgieter's loanin monthly instalments not exceeding R300 000 (Refernote 15).

(5,958) (800,550) (5,958) 179,429

James Charles Herbst

The loan is unsecured and bears interest at a rate of4% above the prime overdraft rate.

A portion of the loan was repaid during 2012. The loanwas subordinated to FirstRand Bank as disclosed innote 15. The loan could not be repaid without theconsent of FirstRand Bank.

(213,426) (1,868,990) (213,426) 112,576

Michael Ronald BeamishThe loan is unsecured, interest free and has no fixedterms of repayment.

(191,280) (181,844) - -

(410,664) (2,851,384) (219,384) 292,005

Current assets - - - 292,005Current liabilities (410,664) (2,851,384) (219,384) -

(410,664) (2,851,384) (219,384) 292,005

14. Trade and other receivables

Trade receivables 25,606,346 34,602,090 117,631 117,631Staff loans 48,969 9,260 - -Prepayments - 453,504 - -Deposits 661,149 4,557,859 - -VAT 2,890,984 97,281 - 1,617CIBs and airtime subject to legal dispute 41,615,893 41,615,893 - -

70,823,341 81,335,887 117,631 119,248

Trade and other receivables ceded as security

Huge Telecom has ceded, as security, all its rights, title and interest in and to Huge Telecom's debtors, to FirstRand Bank.(Refer to note 15).

CIBs and airtime subject to legal dispute

Dispute between MTNSP and Huge Telecom - Refer to note 42 for details.

42



Figures in Rand 2013 2012 2013 2012

15. Cash and cash equivalents

Cash and cash equivalents consist of:

Cash on hand 4,919 3,204 - -Bank balances 9,958,270 10,488,932 1,164 50,799Bank overdraft (14,827,390) (17,361,308) - -

(4,864,201) (6,869,172) 1,164 50,799

Current assets 9,963,189 10,492,136 1,164 50,799Current liabilities (14,827,390) (17,361,308) - -

(4,864,201) (6,869,172) 1,164 50,799

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

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

Nedbank Limited 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:

• Short term direct single account debtor finance facility of R23 000 000, where amounts owing are repayable on demand, subjectto an annual review.

• Settlement encashment facility of R8 000, where amounts owing are repayable on demand, subject to an annual review.• Settlement payments and collection service facility of R2 000 000, where amounts owing are repayable on demand, subject to

an annual review.

The short term direct debtor finance facility is subject to the following material terms and covenants:

Collateral

General deeds of suretyship in favour of FirstRand Bank given by the following persons/entities for the obligations to FirstRandBank of the entities listed below:

Surety Debtor AmountAnton Daniel Potgieter Huge Telecom 9,300,000James Charles Herbst Huge Telecom 9,300,000Vincent Mokhele Mokholo Huge Telecom 1,500,000Huge Mobile Huge Telecom UnlimitedHuge Group Huge Telecom Unlimited

Unlimited cession in favour of FirstRand Bank of credit balances held at FirstRand Bank;

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 conditionsacceptable 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 monthlyinstalments of R300 000 subject to certain conditions (and any other amounts the FirstRand Bank may agree).

43



Figures in Rand 2013 2012 2013 2012

15. Cash and cash equivalents (continued)

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 to be covered by ceded and pledged cash balances, to be held in suitable FirstRand Bankinvestment type accounts;

Undertaking by Huge Telecom and Huge to maintain their adjusted equity at a minimum level of R10 000 000; on the basis thatequity is regarded as inclusive of subordinated third party/shareholders’ loans, share capital, share premium and accumulatedprofits, but excluding any intangible assets, goodwill, unsubstantiated investments, debit loans, deferred tax assets, fair valueadjustments 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 seriesof transactions, whether related or not and whether voluntary of involuntary, sell, transfer or otherwise dispose of the whole orthe substantial part of its assets or the whole or the substantial part of its undertaking, without the prior written consent ofFirstRand Bank;

Undertaking by Huge Telecom and Huge to maintain EBIT at a ratio that is three times the amount of interest payable during anysix 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 85 and Section 87 of the Companies Act of South Africa, 1973 asamended, reduce its share capital or cause any of its subsidiary companies to do so, without the prior written consent of FirstRandBank;

Any change in ownership of Huge Telecom in excess of 5%, or any change in the de facto or other control of Huge Telecom, willentitle 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 R 300 000per month subject to the facility terms and conditions being in compliance.

The company is in breach of covenants due to the fact that the Group's adjusted equity has not been maintained at a minimum level of R10000 000 on the basis that equity is regarded as inclusive of subordinated third party/shareholders’ loans, share capital, share premium andaccumulated profits, but excludes any intangible assets, goodwill, unsubstantiated investments, debit loans, deferred tax assets, fair valueadjustments and non distributable reserves.

44



Figures in Rand 2013 2012 2013 2012

16. Financial assets by category

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

Group - 2013

Loans andreceivables

Fair valuethrough profit

or loss

Total

Investments - Jasco Limited - 298,630 298,630Derivative margin deposits - 8,120,747 8,120,747Trade and other receivables 67,932,357 - 67,932,357Cash and cash equivalents 9,963,189 - 9,963,189

77,895,546 8,419,377 86,314,923

Group - 2012



or loss

Total

Loans to group companies 199,958 - 199,958Investments - Jasco Limited - 263,159 263,159Derivative margin deposits - 14,157,102 14,157,102Trade and other receivables 80,785,102 - 80,785,102Cash and cash equivalents 10,492,136 - 10,492,136

91,477,196 14,420,261 105,897,457

Company - 2013



or loss

Total

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

Company - 2012



or loss

Total

Loans to group companies 69,849,224 - 69,849,224Investments - Jasco Limited - 263,159 263,159Derivative margin deposits - 9,295,981 9,295,981Loans to shareholders 292,005 - 292,005Trade and other receivables 117,631 - 117,631Cash and cash equivalents 50,799 - 50,799

70,309,659 9,559,140 79,868,799

45



Figures in Rand 2013 2012 2013 2012

16. Financial assets by category (continued)

Valuation method of held for trading financial assets stated at fair value

The table below analyses the financial instruments by valuation method. The different levels are defined as follows:

Level 1: quoted prices in active markets for identical assets or liabilities;

Level 2: inputs other than quoted prices included within level 1 that are observed for the asset and liability, either directly orindirectly;

Level 3: inputs for the asset or liability that are not based on observable market data.

2013 Level 1 Level 2 Level 3 TotalInvestments 298,530 - - 298,530Derivative margin deposits - 8,120,747 - 8,120,747

298,530 8,120,747 - 8,419,277

2012 Level 1 Level 2 Level 3 TotalInvestments 263,159 - - 263,159Derivative margin deposits - 14,157,102 - 14,157,102

263,159 14,157,102 - 14,420,261

17. Share capital

Authorised1 000 000 000 Ordinary shares of R0.0001 each 100,000 100,000 100,000 100,000

Reconciliation of Rand value of issued share capital:Opening balance on 28 February 2007 100 100 100 100Share issue on 2 July 2007 860 860 860 860Share issue on 31 July 2007 4,004 4,004 4,004 4,004Share issue on 31 July 2007 2,050 2,050 2,050 2,050Share issue on 31 July 2007 2,950 2,950 2,950 2,950Share issue on 7 August 2007 36 36 36 36Share issue to vendors of Huge Mobile 676 676 676 676Share issue on 26 June 2008 500 500 500 500Share repurchases during the 2009 year (559) (559) - -Share repurchases during the 2010 year (406) (406) - -Share repurchases during the 2011 year (621) (621) (621) (621)Share repurchases during the 2012 year (566) (566) (566) (566)Share repurchases during the 2013 year (93) - (93) -Shares purchased by Huge Telecom during the 2013year

(6) - - -

8,925 9,024 9,896 9,989

Rand value of issued shares:100 512 495 (2012: 105 547 895) ordinary shares of R 0.0001each

10,051 10,555 10,051 10,555

Treasury shares held by Huge (155) (566) (155) (566)Treasury shares held by Huge Telecom (971) (965) - -

8,925 9,024 9,896 9,989

Reconciliation of number of issued share capital:Issued shares 100,512,495 105,547,895 100,512,495 105,547,895Treasury shares held by Huge (1,551,052) (5,659,352) (1,551,052) (5,659,352)Treasury shares held by Huge Telecom (9,706,926) (9,646,926) - -

89,254,517 90,241,617 98,961,443 99,888,543

46



Figures in Rand 2013 2012 2013 2012

17. Share capital (continued)

Share premiumOn issue of shares 237,556,615 237,556,615 237,556,615 237,556,615Less share issue costs (979,380) (979,380) (979,380) (979,380)Treasury shares (23,225,100) (22,181,677) (13,008,300) (12,033,871)

213,352,135 214,395,558 223,568,935 224,543,364

Reconciliation of treasury shares - share capital:Purchased in 2009 559 559 - -Purchased in 2010 406 406 - -Purchased in 2011 621 621 - -Cancelled (621) (621) - -Purchased in 2012 566 566 566 566Cancelled (504) - (504) -Purchased in 2013 99 - 93 -

1,126 1,531 155 566

Reconciliation of treasury shares - share premium:Purchased in 2009 7,754,878 7,754,878 - -Purchased in 2010 2,392,928 2,392,928 - -Purchased in 2011 5,321,064 5,321,064 5,321,064 5,321,064Purchased in 2012 6,712,807 6,712,807 6,712,807 6,712,807Purchased in 2013 1,043,423 - 974,429 -

23,225,100 22,181,677 13,008,300 12,033,871

Total share capitalIssues shares 8,925 9,024 9,896 9,989Share premium 213,352,135 214,395,558 223,568,935 224,543,364

213,361,060 214,404,582 223,578,831 224,553,353

The unissued ordinary par value shares are under the control of the directors in terms of a resolution of the shareholders passed at the lastannual general meeting held on 28 September 2012. This authority remains in force until the next annual general meeting to be held on 12July 2013.

3 904 579 ordinary shares in Huge are the subject of 3 904 579 CFDs held with Nedbank. Huge Telecom has lodged an initial margin equal to100% of the value of the underlying reference instruments to these CFDs, being Huge ordinary par value shares.

359 200 ordinary par value shares in Huge are the subject of 3 592 SSFs held with the South African Futures Exchange. Huge Telecom haslodged an initial margin equal to 100% of the value of the underlying reference instruments to these SSFs, being Huge ordinary par valueshares.

8 045 500 ordinary par value shares in Huge are the subject of 80 455 SSFs held with the South African Futures Exchange. The Company haslodged an initial margin equal to 100% of the value of the underlying reference instruments to these SSFs, being Huge ordinary par valueshares.

A total of 12 309 279 ordinary par value shares in Huge are accordingly the subject of the foregoing derivative contracts.

47



Figures in Rand 2013 2012 2013 2012

18. Reserves

Share option reserveOpening balance (1,074,561) (42,362) (1,074,561) (701,754)Lapsing of Eyeballs share option - (659,392) - -First tranche - Directors' Call Options - transfer of call optionpremium on exercise of Directors' Call Options

- 350,878 - 350,878

Second tranche - Directors' Call Options - transfer of calloption premium on exercise of Directors' Call Options

- (723,685) - (723,685)

Closing balance (1,074,561) (1,074,561) (1,074,561) (1,074,561)

Share option reserve consisting of:First tranche - Directors' Call Options held against directorsand past directors

(701,754) (701,754) (701,754) (701,754)

First tranche - Directors' Call Options - transfer of call optionpremium on exercise of Directors' Call Options

350,878 350,878 350,878 350,878

Second tranche - Directors' Call Options held against directorsand past directors

(723,685) (723,685) (723,685) (723,685)

(1,074,561) (1,074,561) (1,074,561) (1,074,561)

First Tranche – Directors’ Call Options

The First Tranche – Directors’ Call Options consists of five reducing balance call options embedded in single call option agreements signedby Huge with eight past and present directors of Huge Telecom. At each successive call option exercise date the number of sharesunderlying the call option reduces.

Huge acquired the following call options from the following present and past directors of Huge Telecom:

30 November 2010 Call Option, at a strike price of 51.34 cents per call option share, in respect of 292 000 ordinary par valueshares of Huge, exercisable on the delivery by Huge of a call option exercise notice to the applicable director (being: 1) any one ofthe following past directors: Michelle Allison Meth, Manogaran Pillay, Vincent Mokhele Mokholo, Gregory Wayne Wright; EugeneVolschenk; Barend Jacobus Vorster; or: 2) any one of the following present directors: Dion David Willis, Amilcar Manuel Aguiar DaMoura), within two business days of the call option exercise date;

31 July 2011 Call Option, at a strike price of 51.34 cents per call option share, in respect of 233 600 ordinary par value shares ofHuge, exercisable on the delivery by Huge of a call option exercise notice to the applicable director (being: 1) any one of thefollowing past directors: Michelle Allison Meth, Manogaran Pillay, Vincent Mokhele Mokholo, Gregory Wayne Wright; EugeneVolschenk; Barend Jacobus Vorster; or: 2) any one of the following present directors: Dion David Willis, Amilcar Manuel Aguiar DaMoura), within two business days of the call option exercise date;

31 March 2012 Call Option, at a strike price of 51.34 cents per call option share, in respect of 175 200 ordinary shares of Huge,exercisable on the delivery by Huge of a call option exercise notice to the applicable director (being: 1) any one of the followingpast directors: Michelle Allison Meth, Vincent Mokhele Mokholo, Gregory Wayne Wright; Eugene Volschenk; Barend JacobusVorster; Manogaran Pillay; or: 2) any one of the following present directors: Dion David Willis, Amilcar Manuel Aguiar Da Moura),within two business days of the call option exercise date;

30 November 2012 Call Option, at a strike price of 51.34 cents per call option share, in respect of 116 800 ordinary par valueshares of Huge, exercisable on the delivery by Huge of a call option exercise notice to the applicable director (being: 1) any one ofthe following past directors: Michelle Allison Meth, Vincent Mokhele Mokholo, Gregory Wayne Wright; Eugene Volschenk; BarendJacobus Vorster; Manogaran Pillay; or: 2) any one of the following present directors: Dion David Willis, Amilcar Manuel Aguiar DaMoura), within two business days of the call option exercise date;

31 July 2013 Call Option, at a strike price of 51.34 cents per call option share, in respect of 58 400 ordinary par value shares ofHuge, exercisable on the delivery by Huge of a call option exercise notice to the applicable director (being: 1) any one of thefollowing past directors: Michelle Allison Meth, Vincent Mokhele Mokholo, Gregory Wayne Wright; Eugene Volschenk; BarendJacobus Vorster; Manogaran Pillay; or: 2) any one of the following present directors: Dion David Willis, Amilcar Manuel Aguiar DaMoura), within two business days of the call option exercise date.

Huge did not exercise any of its rights under the 30 November 2010 Call Option against any of the applicable directors, and accordingly 467200 Huge ordinary shares were no longer subject to a call option (being the difference between the 30 November 2010 Call Options (292 000x 8 = 2 336 000) and the 31 July 2011 Call Options (233 600 x 8 = 1 868 800)).

48



Figures in Rand 2013 2012 2013 2012

18. Reserves (continued)

On 31 July 2011, Huge exercised the 31 July 2011 Call Option against Michelle Allison Meth, Gregory Wayne Wright, Barend Jacobus Vorsterand Eugene Volschenk. Accordingly, 934 400 (233 600 x 4 = 934 400) Huge ordinary par value shares were acquired by the Company. Thepurchase consideration was R480 000. The shares that were purchased were subsequently cancelled.

Huge did not exercise any of its rights under the 31 July 2011 Call Option against either Manogaran Pillay, Vincent Mokhele Mokholo, DionDavid Willis and Amilcar Manuel Aguiar Da Moura, and accordingly 233 600 Huge ordinary shares were no longer subject to a call option(being the difference between the remaining 31 July 2011 Call Options (233 600 x 4 = 934 400) and the remaining 31 March 2012 CallOptions (175 200 x 4 = 700 800)).

Huge did not exercise any of its rights under the 31 March 2012 Call Option against either Manogaran Pillay, Vincent Mokhele Mokholo, DionDavid Willis and Amilcar Manuel Aguiar Da Moura, and accordingly 233 600 Huge ordinary shares were no longer subject to a call option(being the difference between the remaining 31 March 2012 Call Options (175 200 x 4 = 700 800) and the remaining 30 November 2012 CallOptions (116 800 x 4 = 467 200)).

Huge did not exercise any of its rights under the 30 November 2012 Call Option against either Manogaran Pillay, Vincent Mokhele Mokholo,Dion David Willis and Amilcar Manuel Aguiar Da Moura, and accordingly 233 600 Huge ordinary shares were no longer subject to a call option(being the difference between the remaining 30 November 2012 Call Options (116 800 x 4 = 467 200) and the remaining 31 July 2013 CallOptions (58 400 x 4 = 233 600)).

In summary then:

The Company was granted call options by eight directors of Huge Telecom over 2 336 000 ordinary par value shares of Huge;

The Company allowed call options over 467 200 ordinary par value shares of Huge, being the subject of the 30 November 2010 CallOption, to lapse;

The Company exercised the 31 July 2011 Call Option in respect of 934 400 ordinary par value shares of Huge by delivering calloption exercise notices to four directors of Huge Telecom;

The Company allowed call options over 233 600 ordinary par value shares of Huge, being the subject of the 31 July 2011 CallOption, to lapse;

The Company allowed call options over 233 600 ordinary par value shares of Huge, being the subject of the 31 March 2012 CallOption, to lapse;


The Company still has rights in respect of 233 600 ordinary par value shares of Huge underlying the 31 July 2013 Call Option: 58400 are capable of exercise against each of Manogaran Pillay and Vincent Mokhele Mokholo, being past directors of Huge Telecom,and 58 400 are capable of exercise against each of Dion David Willis and Amilcar Manuel Aguiar Da Moura, being current directorsof Huge Telecom.

Second Tranche – Directors’ Call Options

The Second Tranche – Directors’ Call Options consist of five reducing balance call options embedded in single call option agreements signedby Huge with three past and present directors of Huge Telecom. At each successive call option exercise date the number of sharesunderlying the call option reduces.

Huge acquired the following call options from the following present and past directors of Huge Telecom:

30 November 2011 Call Option, at a strike price of 85 cents per call option share, in respect of 548 660 ordinary par value shares ofHuge, exercisable on the delivery by Huge of a call option exercise notice to the applicable director (being: 1) Manogaran Pillay;(or: 2) any one of the following present directors: Dion David Willis and Amilcar Manuel Aguiar Da Moura, within two business daysof the call option exercise date;

31 July 2012 Call Option, at a strike price of 85 cents per call option share, in respect of 438 928 ordinary par value shares ofHuge, exercisable on the delivery by Huge of a call option exercise notice to the applicable director (being: 1) Manogaran Pillay;(or: 2) any one of the following present directors: Dion David Willis and Amilcar Manuel Aguiar Da Moura, within two business daysof the call option exercise date;

49



Figures in Rand 2013 2012 2013 2012

18. Reserves (continued)

31 March 2013 Call Option, at a strike price of 85 cents per call option share, in respect of 329 196 ordinary par value shares ofHuge, exercisable on the delivery by Huge of a call option exercise notice to the applicable director (being: 1) Manogaran Pillay;(or: 2) any one of the following present directors: Dion David Willis and Amilcar Manuel Aguiar Da Moura, within two business daysof the call option exercise date;

30 November 2013 Call Option, at a strike price of 85 cents per call option share, in respect of 219 464 ordinary par value shares ofHuge, exercisable on the delivery by Huge of a call option exercise notice to the applicable director (being: 1) Manogaran Pillay;(or: 2) any one of the following present directors: Dion David Willis and Amilcar Manuel Aguiar Da Moura, within two business daysof the call option exercise date;

31 July 2014 Call Option, at a strike price of 85 cents per call option share, in respect of 109 732 ordinary par value shares ofHuge, exercisable on the delivery by Huge of a call option exercise notice to the applicable director (being: 1) Manogaran Pillay;(or: 2) any one of the following present directors: Dion David Willis and Amilcar Manuel Aguiar Da Moura, within two business daysof the call option exercise date;

Huge did not exercise any of its rights under the 30 November 2011 Call Option against any of the applicable directors, and accordingly 329196 Huge ordinary shares were no longer subject to a call option (being the difference between the 30 November 2011 Call Options (548 660x 3 = 1 645 980) and the 31 July 2012 Call Options (438 928 x 3 = 1 316 784)).

On 31 July 2012, Huge exercised the 31 July 2012 Call Option against Manogaran Pillay. Accordingly, 438 928 (438 928 x 1 = 438 928) Hugeordinary par value shares will be acquired by the Company. The purchase consideration is R373 089. The shares that are purchased will becancelled.

Huge did not exercise any of its rights under the 31 July 2012 Call Option against either Dion David Willis or Amilcar Manuel Aguiar DaMoura, and accordingly 219 464 Huge ordinary shares are no longer subject to a call option (being the difference between the remaining 31July 2012 Call Options (438 928 x 2 = 877 856) and the remaining 31 March 2013 Call Options (329 196 x 2 = 658 392)).

In summary then:

The Company was granted call options by three directors of Huge Telecom over 1 645 980 (548 660 x 3 = 1 645 980) ordinary parvalue shares of Huge;


The Company exercised the 31 July 2012 Call Option in respect of 438 928 ordinary par value shares of Huge by delivering a calloption exercise notice to Manogaran Pillay, a past director of Huge Telecom;

The Company allowed call options over 219 464 ordinary par value shares of Huge, being the subject of the 31 July 2012 CallOption, to lapse;

The Company still has rights in respect of call options over 658 392 ordinary par value shares of Huge underlying the 31 March 2013Call Option: 329 196 are capable of exercise against each of Dion David Willis and Amilcar Manuel Aguiar Da Moura, being currentdirectors of Huge Telecom.

19. Non-controlling interest

Eyeballs Ambient Le Gacy TotalBalance at 28 February 2011 (588,576) (158,225) (526,003) (1,272,804)Non-controlling shareholding 23% 49.8% 49.7%Share of (loss)/profit for the year (172,237) 485,628 (162,082) 151,309

Balance at 29 February 2012 (760,814) 327,403 (688,085) (1,121,496)Non-controlling shareholding 23% 49.8% 49.7%Share of loss for the year (1,659,952) (264,435) (94,039) (2,018,426)

Balance at 28 February 2013 (2,420,766) 62,968 (782,124) (3,139,922)

50



Figures in Rand 2013 2012 2013 2012

20. Finance lease obligations

Minimum lease payments due - within one year 251,337 301,024 - - - in second to fifth year inclusive 329,090 548,483 - -

580,427 849,507 - -Less: future finance charges (58,682) (109,937) - -

Present value of minimum lease payments 521,745 739,570 - -

Present value of minimum lease payments due - within one year 213,163 294,020 - - - in second to fifth year inclusive 308,582 445,550 - -

521,745 739,570 - -

Non-current liabilities 308,582 445,550 - -Current liabilities 213,163 294,020 - -

521,745 739,570 - -

The Group leases certain assets under finance lease agreements. The average lease term is 48 months and the rate of borrowing is variable.Interest rates are linked to the Prime Overdraft Rate at the contract date. Monthly instalments are R81 438 (2012: R74 224) inclusive ofinterest.

The Group's obligations under finance leases are secured by the lessor's charge over the leased assets (Refer note 4).

21. Provision for losses in associate company


% holding2012

Carryingamount 2013

Carryingamount 2012

MVS Huge Telecom %- %33.00 - (736,461)

On 31 August 2012 the agency agreement between Huge Telecom and MVS was cancelled and MVS ceased trading.

The movement in the carrying amount of the investment in associate company is as follows:Opening balance - (220,000) - -Share of retained earnings (loss) - (516,461) - -

Share of earnings (loss) from the associate company - (736,461) - -

The group's share of earnings (loss) in the associate company is made up as follows:Loss from associate company - (516,461) - -Dividends received - - - -

Share of retained earnings (loss) from the associatecompany

- (516,461) - -

51



Figures in Rand 2013 2012 2013 2012

21. Provision for losses in associate company (continued)

Summary of Group's interest in associate company

Statement of financial positionNon-current assets - 84,018 - -Current assets - 793,549 - -Long term liabilities - non-interest bearing - (3,055,210) - -Current liabilities - non-interest bearing - (38,061) - -Equity - (2,215,704) - -

Statement of comprehensive incomeRevenue - 992,463 - -Expenses - (2,836,895) - -Other income - 310,165 - -Income tax expense - - - -Loss for the year - (1,534,267) - -

Statement of cash flowsCash generated from operating activities - (81,919) - -Cash flows from investing activities - 2,188,799 - -Cash flows from financing activities - (1,788,553) - -Net cash inflow/(outflow) - 318,327 - -

22. Other financial liabilities

Held at amortised costNash Lewin Trust - Development loan

The loan is unsecured, bears interest at the PrimeOverdraft Rate and has no fixed terms of repayment.

116,190 106,754 - -

Nash Lewin Trust

The loan is unsecured, bears no interest and has nofixed terms of repayment.

14,969 14,969 - -

Not The Only Company Proprietary Limited –Development loan

The loan is unsecured, bears interest at the PrimeOverdraft Rate and has no fixed terms of repayment.

116,190 106,754 - -

Not The Only Company Proprietary Limited

The loan is unsecured, bears no interest and has nofixed terms of repayment.

75,090 75,090 - -

EM Kerby

The loan is unsecured, bears no interest and has nofixed terms of repayment. The loan has beensubordinated in favour of other creditors until theassets, fairly valued, exceed the liabilities of Ambient.

425,792 390,378 - -

GB Shiers


68,712 167,331 - -

52



Figures in Rand 2013 2012 2013 2012

22. Other financial liabilities (continued)

J Ingram


86,782 173,425 - -

TelePassport Communications Limited (Incorporatedin Namibia)

The loan was unsecured, interest free and had no fixedterms of repayment.

- 1,664,283 - -

903,725 2,698,984 - -

Current liabilitiesHeld at amortised cost 903,725 2,698,984 - -

23. Trade and other payables

Trade payables 66,001,778 74,412,493 4,537,065 8,360,166VAT - - 194,142 -Trade payables subject to legal dispute 50,784,312 55,284,312 - -Payroll accruals 3,214,418 2,984,234 825,000 85,000Accrued subscriptions 8,261,878 10,544,929 - -Deposits received 88,161 - - -

128,350,547 143,225,968 5,556,207 8,445,166

24. Financial liabilities by category

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

Group - 2013

Financialliabilities at

amortised cost

Total

Loans from shareholders 410,664 410,664Other financial liabilities 903,725 903,725Trade and other payables 128,350,547 128,350,547Bank overdraft 14,827,390 14,827,390Finance lease obligations 521,745 521,745

145,014,071 145,014,071

Group - 2012


amortised cost

Total

Loans from shareholders 2,851,384 2,851,384Other financial liabilities 2,698,984 2,698,984Trade and other payables 143,225,968 143,225,968Bank overdraft 17,361,308 17,361,308Finance lease obligations 739,570 739,570

166,877,214 166,877,214

53



Figures in Rand 2013 2012 2013 2012

24. Financial liabilities by category (continued)

Company - 2013


amortised cost

Total

Loans 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

Company - 2012


amortised cost

Total

Loans from group companies 36,431,350 36,431,350Trade and other payables 8,445,166 8,445,166

44,876,516 44,876,516

25. Revenue

Airtime 251,772,722 368,032,292 34,157,815 20,589,377Telephone and management services 7,668,866 9,667,682 - -International airtime 380,172 925,842 - -Hardware rental and sales 628,073 629,503 - -SMS services 5,696,444 4,749,704 - -Advertising 175,000 25,000 - -

266,321,277 384,030,023 34,157,815 20,589,377

26. Cost of sales

Airtime 178,006,878 256,569,433 29,894,501 20,589,376Marketing incentive rebate (5,180,562) (4,824,120) - -International airtime 285,691 742,627 - -SMS services 4,324,349 3,950,497 - -TMS services 13,785,146 52,079,705 - -MTN Provision (4,500,000) - - -Depreciation on routers 550,184 679,545 - -Hardware rental and sales - 161,001 - -

187,271,686 309,358,688 29,894,501 20,589,376

27. Other income

Network support fees - 775,889 - -Rental income 72,650 6,000 - -Sundry 370,085 643,784 - 154,886Management fees paid by related parties - - - 3,200,000Profit on sale of investment - 2,687,676 - -Bad debts recovered 97,796 140,484 - -Reversal of impairment of Huge Software and Eyeballs - - - 11,732,763Administration fees received 641,452 - - -

1,181,983 4,253,833 - 15,087,649

54



Figures in Rand 2013 2012 2013 2012

28. Operating (loss) profit

Operating (loss) profit for the year is stated after accountingfor the following:

(1,222,241) (2,973,653) (19,111,543) 11,316,462

Operating lease chargesPremises - Recognised on a straight-line basis 4,209,131 5,660,820 - -

Loss on sale of property, plant and equipment - 1,860,313 - -Profit on sale of Telepassport Communications ProprietaryLimited

- (2,685,372) - -

Fair value adjustments of derivatives 6,076,548 2,662,602 4,022,750 1,712,109Fair value adjustment to Investment in Jasco Limited (35,471) - - -Depreciation on property, plant and equipment 1,922,425 2,476,721 - -Amortisation on intangible assets 5,345,530 3,816,680 - -Impairment on property, plant and equipment 6,687 - - -Impairment of intangible assets 8,422,130 - - -Impairment of investment in associate MVS 73,622 - - -Impairment of loans to group companies - - 16,247,680 -Impairment of investment in subsidiary company - Eyeballs - - 4,658,559 -Reversal of impairment of loans to group companies - - - (11,732,763)Loss on exchange differences - 10,290 - -Employee costs 44,536,183 46,860,810 1,395,224 1,291,000Contributions to defined contribution plan 2,970,216 2,998,415 - -Research and development 1,376 - - -Legal expenses 2,567,797 1,518,721 - 14,940Bad debts written off 1,847,773 2,502,345 - -Increase/(Decrease) in doubtful debts allowance (2,088,166) 1,802,170 - -Audit fees 1,260,754 1,104,322 - -

29. Investment revenue

Dividends receivedJoint venture company - Local 250,000 175,000 - -Associate company - Local 5,996 5,879 5,996 5,879

255,996 180,879 5,996 5,879

Interest revenueBank 843,048 721,757 260,632 -Other interest received 211,963 550,191 211,963 4,808,848

1,055,011 1,271,948 472,595 4,808,848

1,311,007 1,452,827 478,591 4,814,727

30. Net change in fair value of financial instruments

Fair value gain (loss) on CFDs (1,874,198) (879,454) - -Fair value gain (loss) on SSFs (4,202,350) (1,783,148) (4,022,750) (1,712,109)

(6,076,548) (2,662,602) (4,022,750) (1,712,109)

55



Figures in Rand 2013 2012 2013 2012

31. Finance costs

Shareholders 409,954 260,637 277,047 38,790Non-current borrowings 10,601 79,125 - -Trade and other payables 13,268 2,937 (168) 174Finance leases 53,789 - - -Derivatives 993,291 225,169 724,095 -Bank 2,210,620 1,895,907 - -Late payment of tax 13,510 38,068 - -

3,705,033 2,501,843 1,000,974 38,964

32. Taxation

Major components of the income tax expense (income)

CurrentLocal income tax - current period - 48,972 - -

DeferredOriginating and reversing temporary differences (1,524,295) (2,262,012) (443,924) 831,382Arising from prior period adjustments 3,788,133 - - -

2,263,838 (2,262,012) (443,924) 831,382

2,263,838 (2,213,040) (443,924) 831,382

Reconciliation of the income tax expense:

Reconciliation between applicable statutory income tax rate and average effective income tax rate:

Applicable statutory income tax rate %28.00 %28.00 %28.00 %28.00

Exempt income %(0.47) %6.51 %0.01 %-Capital gains tax %- %(3.58) %- %-Disallowed expenditure %(38.44) %(1.70) %(24.76) %(22.22)Unutilised assessed loss %- %(64.22) %- %-Change in estimate relating to prior year %(12.61) %1.58 %(1.37) %-

%(23.52) %(33.41) %1.88 %5.78

33. Earnings and headline earnings per share

2013 Gross Tax NetLoss attributable to ordinary equity holders of the parent entity (9,871,164) - (9,871,164)Adjusted for: -Impairment of Eyeballs Intangible - at Company level 5,211,270 (1,459,156) 3,752,114Impairment of Eyeballs Intangible - at Consolidation level 3,210,859 (899,040) 2,311,819Impairment of Huge Software assets 142,537 (39,910) 102,627Impairment of investment in associate company 73,622 (20,614) 53,008

Headline earnings (loss) (1,232,876) (2,418,720) (3,651,596)

56



Figures in Rand 2013 2012 2013 2012

33. Earnings and headline earnings per share (continued)

2012 Gross Tax NetLoss attributable to ordinary equity holders of the parent entity (4,561,808) - (4,561,808)Adjusted for: -Loss on disposal of property, plant and equipment 1,820,745 (509,809) 1,310,936Profit on disposal of associate company (2,687,676) 376,275 (2,311,401)

Headline loss (5,428,739) (133,534) (5,562,273)

Weighted average number of ordinary sharesIssued ordinary shares at 1 March 90,241,617 95,900,969 - -Effect of treasury shares (569,421) (1,314,688) - -

Issued ordinary shares at 28/29 February 89,672,196 94,586,281 - -

Per share statisticsEarnings per share (11.01) (4.82) - -Headline earnings per share (4.07) (5.88) - -Diluted earnings per share (11.01) (4.82) - -Diluted headline earnings per share (4.07) (5.88) - -

34. Cash generated from operations

Loss before taxation (9,625,752) (6,623,538) (23,656,676) 14,380,116Adjustments for:Depreciation 1,922,425 2,476,721 - -Amortisation 5,345,530 3,816,680 - -Loss on sale of property, plant and equipment - 1,836,702 - -Profit on sale of investments - (2,695,526) - -Loss on sale of intangible assets - 23,611 - -Dividends received (255,996) (180,879) (5,996) (5,879)Interest received (1,055,011) (1,271,948) (472,595) (4,808,848)Finance costs 3,705,033 2,501,843 1,000,974 38,964Realised loss on derivatives 6,076,548 2,662,602 4,022,750 1,712,109Impairment loss on intangible assets 8,422,130 - - -Impairment of Eyeballs investment and loan - - 20,906,239 -Impairment of property, plant and equipment 6,687 - - -Movement in provision for losses in associate company (736,461) - - -Income of associate company - (393,369) - -Prescription of dividends payable to shareholders - (14,952) - (14,952)Fair value of investment (35,471) 42,426 (35,471) 42,426Share of earnings in joint venture company - (174,672) - -(Profit) loss from equity accounted investments (67,063) 516,461 - -Changes in working capital:Inventories 3,409,195 34,598,413 (214,952) (3,805,052)Trade and other receivables 10,512,546 (11,849,024) 1,617 1,159,911Derivative margin deposits 6,036,355 (5,602,132) 3,905,496 (6,077,781)Trade and other payables (14,875,420) (11,775,443) (2,888,959) (1,618,940)

18,785,275 7,893,976 2,562,427 1,002,074

35. Tax refunded

Balance at beginning of the year 127,920 1,102,456 - -Current tax for the year recognised in profit or loss - (48,972) - -Adjustment directly in other comprehensive income 36,763 (73,223) - -Balance at end of the year (164,404) (127,920) - -

279 852,341 - -

57



Figures in Rand 2013 2012 2013 2012

36. Commitments

Network lease commitments

Minimum lease payments due - within one year 3,908,707 5,121,431 - - - in second to fifth year inclusive 2,619 5,340 - -

3,911,326 5,126,771 - -

Network lease commitments represent subscriber agreements payable by the Group for access to the networks of the MNOs and includebundled free minutes or value relating to each subscription month. Contracts are signed for 12 months.

Operating leases – as lessee (expense)

Minimum lease payments due - within one year 5,158,502 2,224,055 - - - in second to third year inclusive 216,000 - - -

5,374,502 2,224,055 - -

Operating lease payments represent rentals payable by the Group for certain of its office properties and office equipment. Leases arenegotiated 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

`

Relationships

Subsidiary companies Huge TelecomHuge MobileEyeballsHuge SoftwareHuge CellularAmbientLe Gacy

Joint venture company Gonondo

Shareholders Refer to shareholder analysis note 43.

Key management personnel Stephen Peter Tredoux – a director of HugeMichael Ronald Beamish – a director of Huge and EyeballsAnton Daniel Potgieter – a director of Huge, Huge Mobile,and Le Gacy a past director of HugeTelecom, MVS and EyeballsVincent Mokhele Mokholo – a director of Huge, and AmbientJames Charles Herbst – a director of Huge, Huge Telecom,Huge Mobile and Le Gacy, past director of Eyeballs and MVSand Huge SoftwareAmil Manuel Aguiar Da Moura – a director of Huge TelecomDion David Willis – a director of Huge TelecomNathan Lewin – a director of EyeballsEdward Mitchell Kerby – a director of AmbientGregory Beaufort Shiers – a director of AmbientJarrat Ingram – a director of AmbientDavid Deetlefs – a director of Huge and Huge Telecom

Entities controlled by directors which have transacted with a groupcompany

Accknowledge Systems Proprietary Limited (Accknowledge) –a shareholder of which is James Charles HerbstLuigi's Trust (Anton Daniel Potgieter)Eagle Creek Investment 223 Proprietary Limited (James Charles Herbst)Pacific Breeze Trading Proprietary Limited (James Charles Herbst)Praesidium Family Trust (Michael Ronald Beamish)Dee-Anco Investments Proprietary Limited (David Deetlefs)

Refer to relevant notes for terms and conditions on related party balances and transactions.

58



Figures in Rand 2013 2012 2013 2012

37. Related parties (continued)

Related party balances

Loan accounts - Owing (to) by related parties NotesAnton Daniel Potgieter 13 (5,958) (800,550) (5,958) 179,429James Charles Herbst 13 (213,426) (1,868,990) (213,426) 112,576Huge Mobile 12 - - 1,401,392 41,559,800Huge Telecom 12 - - (5,515,045) (36,431,450)Huge Software 12 - - 14,208,992 6,694,906Eyeballs 12 - - 20,926,231 20,085,518TelePassport Communications Proprietary Limited 12 - 1,664,283 - -MVS 12 - 199,959 - -Huge Cellular 12 - - - 1,509,000Gregory Beaufort Shiers 22 (68,712) (167,331) - -Jarrat Ingram 22 (86,782) (173,424) - -Edward Mitchell Kerby 22 (425,792) (390,378) - -Michael Ronald Beamish 13 (191,280) (181,844) - -Not The Only Company Proprietary Limited 22 (75,090) (75,090) - -Not The Only Company Proprietary Limited 22 (116,190) (106,754) - -The Nash Lewin Trust - Development loan 22 (116,190) (106,754) - -The Nash Lewin Trust 22 (14,969) (14,969) - -

Amounts included in Trade Receivables (Trade Payables)regarding related partiesGonondo - (148,893) - -MVS - (679,125) - -Accknowledge - (11,115) - -

Related party transactions

Interest paid to (received from) related partiesAnton Daniel Potgieter 42,803 (28,775) 26,718 (28,775)James Charles Herbst 19,546 9,870 (59,623) -Huge Software - - - (48,183)Huge Mobile - - - (4,383,814)Huge Telecom - - - (175,856)Eyeballs - - - (141,440)MVS - (71,855) - -Edward Mitchell Kerby 35,414 33,567 - -Gregory Beaufort Shiers 11,380 19,753 - -Jarrat Ingram 13,358 22,282 - -Michael Ronald Beamish - development loan 9,436 4,718 - -Not The Only Company Proprietary Limited - developmentloan

9,436 4,718 - -

The Nash Lewin Trust - development loan 9,436 4,718 - -Michael Ronald Beamish - 3,319 - -Not The Only Company Proprietary Limited - 3,319 - -The Nash Lewin Trust - 3,197 - -

Purchases from (sales to) related partiesAccknowledge 308,083 - - -Gonondo 1,946,073 - - -Huge Telecom - - (34,158,066) (20,589,377)

Option premium on purchase of call optionsAmil Manuel Aguiar Da Moura - 241,228 - -Dion David Willis - 241,228 - -Manogaran Pillay - 241,228 - -

Network support fees paid to (received from) relatedpartiesTelePassport Communications Proprietary Limited - (688,540) - -

59



Figures in Rand 2013 2012 2013 2012

37. Related parties (continued)

Management fees paid to (received from) related partiesHuge Telecom - - - (3,200,000)Huge Software - - - (8,000)

Dividends received from related partiesGonondo 250,000 175,000 - -Jasco Limited 5,996 - - -

Share of (earnings) lossesGonondo (67,063) (61,733) - -TelePassport Communications Proprietary Limited - (359,557) - -MVS - 516,461 - -

Commission paid to related partyMVS - 900,000 - -

Consulting fees paid to related partyDee-Anco Investments Proprietary Limited 1,197,000 - - -

38. Directors' emoluments

Executive

2013

Emoluments Medical aid Provident fund TotalJames 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

2012

Emoluments Performancebonus

Medical aid Provident fund Total

James Charles Herbst 1,987,926 2,630,000 77,286 146,394 4,841,606Vincent Mokhele Mokholo 378,875 - - - 378,875Yvette Neveling 173,355 - 7,974 15,605 196,934Neil Brian Wensley 686,310 - 42,651 61,971 790,932Manogaran Pillay 1,262,076 66,377 54,180 111,666 1,494,299

4,488,542 2,696,377 182,091 335,636 7,702,646

Non-executive

2013

Directors' fees TotalMichael Ronald Beamish 225,230 225,230Dennis Robert Gammie 154,530 154,530Stephen Peter Tredoux 280,000 280,000Kenneth Delroy Jarvis 80,000 80,000Brian Alexander McQueen 105,000 105,000Vincent Mokhele Mokholo 223,000 223,000Anton Daniel Potgieter 223,000 223,000

1,290,760 1,290,760

60



Figures in Rand 2013 2012 2013 2012

38. Directors' emoluments (continued)

2012

Directors' fees TotalMichael Ronald Beamish 230,000 230,000Kenneth Delroy Jarvis 223,000 223,000Brian Alexander McQueen 253,000 253,000Anton Daniel Potgieter 225,000 225,000Stephen Peter Tredoux 360,000 360,000

1,291,000 1,291,000

39. Risk management

Capital risk management

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returnsfor 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 12, 13, 15, 20 and 22 and equity asdisclosed in the statement of financial position.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital toshareholders, issue new shares or sell assets to reduce debt.

There are externally imposed capital requirements.

There have been no changes to what the entity manages as capital, the strategy for capital maintenance or externally imposed capitalrequirements from the previous year.

Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through anadequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlyingbusinesses, 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 managesliquidity 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 wellas forecasting cash inflows and outflows on a day to day basis. Liquidity needs are monitored in various time bands, on a day to day andweek 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 outlookperiod are identified monthly. Net cash requirements are compared to available borrowing facilities in order to determine headroom orshortfalls. 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 financialassets 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 groupingsbased on the remaining period at the statement of financial position to the contractual maturity date. The amounts disclosed in the tableare the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting isnot significant.

61



Figures in Rand 2013 2012 2013 2012

39. Risk management (continued)

Group

At 28 February 2013 Carrying value Contractualcash flow

Within 6 months Between 6 and12 months

Between 1 and5 years

No fixed terms

Trade and other payables 128,350,547 128,350,454 128,350,454 - - -Finance lease obligations 521,745 521,745 - 213,163 308,582 -Other financial liabilities 903,725 - - - - 903,725Loans from shareholders 410,664 410,664 - 410,664 - -Bank overdraft 14,827,390 14,827,390 14,827,390 - - -



Between and 5years

No fixed terms

Trade and other payables 143,225,968 143,225,968 87,941,654 55,284,314 - -Finance lease obligations 739,570 739,570 - 294,019 445,550 -Other financial liabilities 2,698,984 - - - - 2,698,984Loans from shareholders 2,851,384 - - 2,851,384 - -Bank overdraft 17,361,308 17,361,308 17,361,308 - - -

Company




No fixed terms

Trade and other payables 5,556,207 5,556,207 5,556,207 - - -Loans from shareholders 219,384 - - 219,384 - -Loans from subsidiaries 5,514,945 5,514,945 - 5,514,945 - -




No fixed terms

Trade and other payables 8,445,166 8,445,166 8,445,166 - - -Loans from group companies 36,431,350 36,431,350 - - - 36,431,350

Interest rate risk

The Group’s interest rate risk arises from borrowings. Borrowings issued at variable rates expose the Group's cash flow to changes in thelevel of interest rates. During 2013 and 2012, the Group’s borrowings at variable rates were denominated in the Rand.

At 28 February 2013, 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 R 63,892 (2012: R 109,659) lower/higher.

At 28 February 2013, 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 R 281 944 (2012: R 69,229) lower/higher.

Variable interest rate instrumentsLoans to group companies - 199,958 20,288,935 69,849,224Cash and cash equivalents 9,963,189 10,492,136 1,164 50,799Loans to shareholder - - - 292,005Loans from shareholders (410,664) (2,851,384) (219,384) -Loans from group companies - - (5,514,945) (36,431,350)Other financial liabilities (903,725) (2,698,984) - -Finance lease obligations (521,745) (739,570) - -Bank overdraft (14,827,390) (17,361,308) - -

(6,700,335) (12,959,152) 14,555,770 33,760,678

62



Figures in Rand 2013 2012 2013 2012


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 contractualobligations, and arises principally from the Group’s receivables from customers, cash and cash equivalents and investment securities.

The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer and is managed on a Group basis.

Financial assets exposed to credit risk at year end were as follows:

`

Financial instrument Group2013

Group2012

Company2013

Company2012

Other financial assets 8,419,277 14,420,261 5,689,115 9,559,340Loans to group companies - 199,958 20,288,935 69,849,224Trade receivables 70,823,341 81,335,887 117,631 117,631Cash and cash equivalents 9,963,189 10,492,136 1,164 50,799

Total 89,205,807 106,448,242 26,096,845 79,576,994

The Group continuously monitors the potential default by its customers and other counterparties, identified either individually or as a groupand 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 withsuitably creditworthy counterparties. Average debtors’ terms are 30 days. Interest is charged on overdue customer accounts.

The Group establishes an allowance for impairment of debtors’ balances that represents its estimate of potential losses in respect of tradeand other receivables and investments. The main components of this allowance are a specific loss component that relates to individuallysignificant exposures, and a collective loss component established for groups of similar assets in respect of losses that may be incurred butnot yet 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 1 month past due are not considered to be impaired. At 28 February 2013,R 2,285,458 (2012: R 15,715,020) were past due but not impaired.

The ageing of amounts past due but not impaired is as follows:

30 days past due 462,553 1,487,730 - -60 days past due 92 2,196,346 - -90 days past due 276,661 3,007,450 - -120+ days past due 1,546,152 9,023,494 - -

Trade and other receivables impaired

As of 28 February 2013, trade and other receivables of R 1,494,223 (2012: R 3,353,552) were impaired and provided.

The ageing of this impairment is as follows:

0 to 90 days - 102,883 - -120+ days 1,494,223 3,250,669 - -

The Group’s management considers that all the above financial assets, which are not impaired or past their due date, for each of thereporting dates under review, are of good credit quality.

Reconciliation of provision for impairment of trade and other receivables

Opening balance 3,353,552 5,389,661 - -Provision for impairment raised 542,323 570,504 - -Unused provision reversed - (772,880) - -Utilised provision (2,401,652) (1,833,733) - -

1,494,223 3,353,552 - -

63



Figures in Rand 2013 2012 2013 2012


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 similarcharacteristics. 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 SSFs contracts and CFDs are considered negligible, since thecounterparties are reputable banks with high quality credit ratings.

Foreign currency risk

The Group's transactions are carried out in Rands. The Group does not carry out any operations with international companies and thereforethere is no exposure to foreign currency exchange risk.

Price risk

The Group is exposed to equity securities price risk because of investments held by the Group and classified on the consolidated statementof financial position either as available-for-sale or at fair value through profit or loss.

Equity price risk Number ofunderlying

sharesHuge Telecom

Number ofunderlying

sharesHuge

Number ofunderlying

sharesGroup

Variance of 10cto share price

SSFs 359,200 8,045,500 8,404,700 840,470CFDs 3,904,579 - 3,904,579 390,458

Total price risk if change by 10c 1,230,928

40. Comparative figures

Certain comparative figures have been reclassified in the 2012 financial year to provide more accurate presentation and disclosure in termsof IFRS. This had no impact on the statements of financial position or statement of comprehensive income for the prior year.

The effects of the reclassification are as follows:

Statement of Financial PositionOther financial assets - 14,157,103 - 9,295,981Derivative margin deposits - (7,275,924) - (2,815,925)Cash and cash equivalents - (6,881,179) - (6,480,056)Investments in subsidiary companies - - - (52,343,915)Loans to group companies - - - 52,343,915

Profit or LossRevenue - (4,824,120) - -Cost of sales - 4,824,120 - -

41. Events after the reporting period

The directors are not aware of any other matters or circumstances arising since the end of the financial year to the date of this report thatrequire disclosure or adjustment to the consolidated and separate AFS.

64



Figures in Rand 2013 2012 2013 2012

42. 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 anorder 1) liquidating Huge Telecom; 2) that the costs of the application be costs in the liquidation; 3) further and/or alternative relief, oralternatively a judgment against Huge Telecom for 1) payment of the amount of R30 million; 2) interest; 3) costs of the suit; 4) further oralternative 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) referredto trial; 2) the notice of motion and founding affidavit were ordered to stand as a simple summons, 3) MTNSP was required to deliver adeclaration, 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.

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 December2012 MTNSP amended its declaration.

On 20 February 2013 Huge Telecom filed its Plea to MTNSP’s amended declaration. The amended declaration does not include a prayer forthe winding up of Huge Telecom. Huge Telecom filed its Special Plea and Plea defending the action, and on 18 April 2013 MTNSP filed areplication.

The matter has as yet not been set down for hearing.

On 15 February 2012 the Sheriff of the South Gauteng High Court served a combined summons against Huge Telecom in terms of whichMTNSP prayed for judgment against Huge Telecom for payment of the sum of R 56 020 357 plus interest and costs on the basis of a tacitagreement being concluded between Huge Telecom and MTNSP during September 2009, alternatively on the basis of unjustifiableenrichment at the expense of MTNSP. Such action will only proceed in the event that MTNSP is unsuccessful in the first action.

The matter has not yet been set down for hearing.

The Group has recognised the assets and the liabilities relating to the MTNSP dispute in accordance with the settlement agreement whichMTNSP claims was reached between the parties. As such the carrying amounts of these assets and liabilities may be materially adjustedwithin 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 signedby Huge Telecom and Kimber on 2 September 2008, as varied by the option agreement amendment agreement signed by Huge Telecom andKimber on 27 February 2009 (the option agreements).

On 12 October 2011 Kimber launched an application in the South Gauteng High Court for rectification of the option agreements and forpayment of the sum of R6.8 million plus interest thereon (the main application).

Huge Telecom opposed the notice of motion in terms of the main application and filed its answering affidavit on 19 October 2011.

On 14 November 2011 Huge Telecom launched its own notice of motion in terms of a separate Section 6(1) application in the South GautengHigh Court seeking an order compelling Kimber to comply with the arbitration undertakings in the option agreements, which preventKimber from litigating in court.

The matter was heard on 28 March 2012. On 31 August 2012, Vermeulen AJ passed judgment a) staying the application by Kimber until thefinalization of the arbitration proceedings in relation to the dispute relating to the option agreements, and b) ordering Kimber to pay HugeTelecom’s costs of this application.

Kimber has as yet not launched arbitration proceedings against Huge Telecom.

No amounts have been recognized in the financial results given that the Board is of the view that there is no basis to the cause of actionand such action therefore has little chance of success.

65



Figures in Rand 2013 2012 2013 2012

42. Litigation (continued)

Other litigation

The Company and Group engage in a certain level of litigation in the ordinary course of business. The directors have considered all pendingand current litigation and are of the opinion that, unless specifically provided, none of these will result in a loss to the Group. Allsignificant litigation which the directors believes will have a possible loss has been disclosed.

43. Shareholder analysis

Shareholder analysis 2013 2012Number of

shareholdersNumber of

shares%

shareholdingNumber of


shares% shareholding

Public 284 33,731,251 33.56 304 32,804,098 31.08Non-public 19 66,781,244 66.44 21 72,743,797 68.92

303 100,512,495 100.00 325 105,547,895 100.00

Non-public shareholder analysis 2013 2012Number of


sharesNumber of


sharesDirectors of Huge 6 32,433,914 6 32,336,380Non-beneficial indirect holdings relating to directors of Huge 1 10,104,274 1 10,104,274Directors of Huge Telecom 4 2,082,387 5 2,543,122Holdings underlying derivative instruments 1 12,373,743 1 12,373,743Treasury shares 1 9,706,926 2 15,306,278Holdings of designated advisor 1 80,000 1 80,000

14 66,781,244 16 72,743,797

Major shareholders 2013 2012Number of

shares% shareholding Number of

shares% shareholding

Mojaho Trading Proprietary Limited * 12,630,343 12.57 12,630,343 11.97Nedgroup Securities Proprietary Limited ** 12,335,526 12.27 12,393,489 11.74Huge Telecom 9,706,926 9.66 9,646,926 9.14Pacific Breeze^ 6,432,200 6.40 6,432,200 6.09Praesidium Family Trust # 6,401,149 6.36 6,284,300 5.95Anton Daniel Potgieter 6,163,400 6.13 6,163,400 5.84Huge 1,551,052 1.54 5,659,352 5.36

55,220,596 54.93 59,210,010 56.09

* VM Mokholo is a 20% shareholder in Mojaho Trading Proprietary Limited.** Held as a hedge for short positions in CFDs and SSFs, the long positions of which are held by Huge and Huge Telecom.^ A non beneficial holding related to JC Herbst.# Held on behalf of MR Beamish.

Type of shareholder 2013 2012Number of


sharesNumber of


sharesIndividuals 246 28,653,497 262 26,424,048Nominees and trusts 19 16,409,990 19 15,693,854Close Corporations 7 581,312 8 512,255Companies, financial institutions and other institutions 31 54,867,696 35 62,917,738

303 100,512,495 324 105,547,895

66


Notes to the Consolidated Annual Financial Statements

43. Shareholder analysis (continued)

Size of shareholding 2013 2012Number of


sharesNumber of


shares0 - 1 000 shares 39 18,868 41 19,3401 001 - 5 000 shares 61 188,374 65 206,9625 001 - 100 000 shares 151 4,745,458 165 5,081,473100 001 - 1 000 000 shares 35 13,915,188 36 14,345,9801 000 001 shares and over 17 81,644,607 17 85,894,140

303 100,512,495 324 105,547,895

67

HUGE GROUP LIMITED

(Incorporated in the Republic of South Africa)

(Registration number 2006/023587/06)

(“Huge” or “the Company”)

Share code: HUG ISIN: ZAE000102042

XXVII: Notice of annual general meeting of the shareholders of the Company

Notice is hereby given that the Annual General Meeting of the Company shall be held in the Woody Woods Boardroom, 146a

Kelvin Drive, Woodmead, 2191, at 10:00 on Friday, 12 July 2013, to consider and if deemed fit, to pass, with or without

modification, the following ordinary and special resolutions:

Electronic participation in the annual general meeting

Please note that the Company intends to make provisions for shareholders of the Company, or their proxies, to participate in the

Annual General Meeting of the Company by way of electronic communication. Should you wish to participate in the Annual

General Meeting by way of electronic communication, you will need to contact the Company at 0860 03 04 03 (Contact – Jean

Tyndale-Biscoe) by Wednesday, 10 July 2013, 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, 146a Kelvin Drive, Woodmead, 2191 so as to be received by no later than 10:00 on Wednesday,

10 July 2013.

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 31 May 2013 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 5 July

2013. Accordingly, only shareholders who are registered in the register of members of the Company on 5 July 2013 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 2013, together with the directors’ report and the auditors’ report thereon, be received, considered and adopted.”

Explanatory note for ordinary resolution number 1

The purpose of ordinary resolution number 1 is to obtain shareholder approval for the annual financial statements presented for

the year ended 28 February 2013.

Ordinary resolution number 2 – Director retirement and re-election (Mr VM Mokholo)

“RESOLVED THAT Mr VM Mokholo, who retires in accordance with the Company’s articles of association but offers himself for re-

election, be and is hereby re-elected as the a director of Huge Group Limited.”

Ordinary resolution number 3 – Director retirement and re-election (Mr DG Gammie)

“RESOLVED THAT Mr DG Gammie, who retires in accordance with the Company’s articles of association but offers himself for re-

election, be and is hereby re-elected as a non-executive director of Huge Group Limited.”

Explanatory note for ordinary resolution number 2 and 3

In terms of the Company’s Memorandum of Incorporation, one-third of the directors are required to retire by rotation each year.

Ordinary resolution number 4 – Appointment of executive director (Mr D Deetlefs)

“RESOLVED THAT the appointment of Mr D Deetlefs as an executive director of the Company be and is hereby approved.”


The purpose of ordinary resolution number 4 is to approve the appointment of Mr D Deetlefs as an executive director of the

Company.

Ordinary resolution number 5 – Appointment and remuneration of auditor

“RESOLVED THAT the appointment of BDO South Africa Incorporated as auditor, with N Griffiths as the designated audit partner,

of the Company be and is hereby approved.”


The purpose of ordinary resolution number 5 is to approve the appointment of BDO South Africa Incorporated as auditor of the

Company for the next financial year, being the year ending 28 February 2014.

Ordinary resolution number 6 – Appointment of Combined Audit and Risk Committee member (DR Gammie)

“RESOLVED THAT DR Gammie be and is hereby approved as a member of the Combined Audit and Risk Committee.”

Ordinary resolution number 7 – Appointment of Combined Audit and Risk Committee member (AD Potgieter)

“RESOLVED THAT AD Potgieter be and is hereby approved as a member of the Combined Audit and Risk Committee.”

Ordinary resolution number 8 – Appointment of Combined Audit and Risk Committee member (SP Tredoux)

“RESOLVED THAT SP Tredoux be and is hereby approved as a member of the Combined Audit and Risk Committee.”

Explanatory note for ordinary resolution number 6 – 8:

In terms of the Companies Act, 71 of 2008, shareholders are required to approve the appointment of the Members of the Audit

Committee of the Company.

The curriculum vitae of each of the persons nominated as members of the Combined Audit and Risk Committee are set out on

page (vi) and (vii) of the Annual Report. In terms of section 61(8)(c)(iii) of the Companies Act, 71 of 2008, shareholders are

required to approve the appointment of the members of the Audit Committee by means of a simple majority of votes cast in favour

of the appointment.

Ordinary resolution number 9 – Approval of remuneration policy

“RESOLVED THAT shareholders endorse, by way of a non-binding advisory vote, the Company’s remuneration policy (excluding

the remuneration of the non-executive directors and the members of Board committees for their services as directors and

members of committees) as set out on page (xxx) of the Annual Report.”

Remuneration policy summary


Chapter 2 of King III dealing with boards and directors requires companies to every year table their remuneration policy to

shareholders for a non-binding advisory vote at the Annual General Meeting. This vote enables shareholders to express their

views on the remuneration policies adopted and on their implementation.

This ordinary resolution is of an advisory nature and failure to pass this resolution will therefore not have any legal consequences

relating to existing arrangements. However the Board will take the outcome of the vote into consideration when considering the

Company’s remuneration policy. Nevertheless, for record purposes, the minimum percentage of voting rights that is required for

this resolution to be adopted as a non-binding advisory vote is 50% of the voting rights plus one vote to be cast on the resolution.

Ordinary resolution number 10 – General authority to allot and issue shares for cash

“RESOLVED THAT, subject to the approval of 75% of shareholders present in person and by proxy, and entitled to vote at the

meeting, excluding the controlling shareholders of the Company and the Company’s Designated Advisor, the directors of the

Company be and are hereby authorised, by way of a general authority, to allot and issue all or any of the authorised but unissued

shares of the Company as they in their discretion deem fit, subject to the following limitations:

the shares which are the subject of the issue for cash must be of a class already in issue, or where this is not the case, must

be limited to such equity shares that are convertible into a class already in issue;

this authority shall not endure beyond the next annual general meeting of the Company nor shall it endure beyond fifteen

months from the date of this meeting;

there will be no restrictions in regard to the persons to whom the shares may be issued, provided that such shares are to be

issued to public shareholders (as defined by the JSE Limited in its Listings Requirements) and not to related parties;

upon any issue of shares which, together with prior issues during any financial year, will constitute 5% or more of the number

of shares of the class in issue, the Company shall by way of an announcement on the Securities Exchange News Service

(“SENS”) give full details thereof, including the effect on the net asset value and earnings per share of the Company;

the aggregate issue of a class of shares already in issue in any financial year shall not exceed 50% of the number of that

class of shares (including securities which are compulsorily convertible into shares of that class); and

the maximum discount at which shares may be issued is 10% of the weighted average traded price of the Company’s shares

over the 30-day period prior to the date that the price is agreed or determined by the directors of the Company.


The purpose of ordinary resolution number 10 is to permit the directors of the Company to issue unissued shares in the Company

as and when the need may arise.

Ordinary resolution number 11 – Unissued shares under the control of the directors

“RESOLVED THAT the authorised but unissued ordinary shares in the capital of the Company be placed under the control of the

directors of the Company until the next Annual General Meeting of the Company and that the directors be and are hereby

authorised and empowered to allot, issue and otherwise dispose of such shares, on such terms and conditions, and at such times

as the directors in their discretion deem fit, subject to sections 38 and 40 of the Companies Act, 71 of 2008, and the JSE Limited’s

Listings Requirements.”

Explanatory note for ordinary resolution number 11:

Shareholders are requested to approve the placing of unissued shares under the control of the directors in order to facilitate

potential acquisitions or issues of shares for cash or similar transactions.

Special resolution number 1 – General authority to acquire (repurchase) shares

“RESOLVED THAT, subject to the approval of 75% of the shareholders present in person and by proxy, and entitled to vote at the

meeting, the Company and/or a subsidiary of the Company is hereby authorised, by way of a general authority from time to time,

to acquire securities (including ordinary shares) in the share capital of the Company from any person in accordance with the

requirements of the Company’s Articles of Association, the Companies Act and the JSE Limited Listings Requirements, provided

that:

any such acquisition of 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

(including ordinary and/or preference shares) constituting, on a cumulative basis, 20% of the number of ordinary and/or

preference shares in issue and for each 5% in aggregate of the initial number acquired thereafter, in compliance with

paragraph 11.27 of the JSE Limited’s Listings Requirements;

acquisitions of securities (including ordinary shares) in aggregate in any one financial year may not exceed 20% of the

Company’s ordinary and/or 20% of its preference issued share capital, as the case may be, as at the date of passing of this

special resolution number 1;

ordinary and/or preference shares may not be acquired at a price greater than 10% above the weighted average of the

market value at which such ordinary and/or preference shares are traded on the JSE as determined over the five business

days immediately preceding the date of acquisition of such ordinary and/or preference shares;

the Company has been given authority by its Memorandum of Incorporation;

the Board of directors authorises the acquisition, the Company passes the solvency and liquidity test and that from the time

that the test is done, there are no material changes to the financial position of the Company;

at any point in time, the Company and/or its subsidiary companies may only appoint one agent to effect any such acquisition;

the Company and/or its subsidiary companies undertaking that they will not enter the market to so acquire the Company’s

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 not acquiring any securities (including ordinary shares) during a prohibited

period, as defined in the JSE Limited’s Listings Requirements, unless a repurchase programme is in place, where dates and

quantities of shares to be traded during the prohibited period are fixed and full details of the programme have been disclosed

in an announcement over SENS prior to the commencement of the prohibited period.”

Explanatory note for special resolution number 1:

The reason for and effect of this special resolution is to grant the Company and its subsidiary companies a general authority to

facilitate the acquisition by the Company and/or its subsidiary companies of the Company’s own 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 and/or 20%

of its participating preference 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;

recognised and measured in accordance with the accounting policies used in the latest audited AFS, the assets of the

Company and its subsidiary companies will exceed the liabilities of the Company and its subsidiary companies;

the share capital and reserves of the Company and its subsidiary companies will be adequate for the purposes of the

business of the Company and its subsidiary companies;

the working capital of the Company and its subsidiary companies will be adequate for the purposes of the business of the

Company and its subsidiary companies,

for the period of 12 months after the date of the notice of the annual general meeting. The Company will ensure that its

Designated Advisor will provide the necessary letter on the adequacy of the working capital in terms of the JSE Limited’s Listings

Requirements, prior to the commencement of any purchase of the Company’s securities (including ordinary shares) on the open

market.

The JSE Limited’s Listings Requirements require, in terms of Section 11.26, the following disclosures, which appear in this annual

report:

Directors and management – refer to pages (vi) and (vii) of the Annual Report;

Major shareholders – refer to note 43 of the AFS;

Directors’ interests in securities – refer to point 10 of the Directors’ Report; and

Share capital of the Company – refer to notes 17 of the AFS.

Litigation statement

In terms of paragraph 11.26 of the JSE Limited’s Listings Requirements, the directors, whose names appear on pages (vi) and

(vii) of the Annual Report of which the notice of annual general meeting forms part, are not aware of any legal or arbitration

proceedings that are pending or threatened, that may have or had in the recent past, being at least the previous 12 months, a

material effect on the Company’s financial position that has not already been disclosed in the AFS and annual financial statements

that form part of the Annual Report.

Directors’ responsibility statement

The directors, whose names appear on pages (vi) and (vii) of the Annual Report, collectively and individually, accept full

responsibility for the accuracy of the information pertaining to this special resolution and certify that, to the best of their knowledge

and belief, there are no facts that have been omitted which would make any statements false or misleading, and that all

reasonable enquiries to ascertain such facts have been made and that this special resolution contains all information required by

law and the JSE Limited’s Listings Requirements.

Material changes

Other than the facts and developments reported on in the Annual Report, there have been no material changes in the financial or

trading position of the Company and its subsidiary companies since the date of signature of the Audit Report and up to the date of

the notice of annual general meeting.

Special resolution number 2 – Non-executive directors’ remuneration

“RESOLVED THAT, subject to the approval of 75% of the members present in person and by proxy, and entitled to vote at the

meeting, the remuneration payable to the non-executive directors for the financial year commencing 1 March 2013, be approved

as follows:

Chairman Other directors/Members of committees

Monthly retainer R27 000 R16 000

Meeting fees (per day): Attendance fee

R11 000 R11 000

Special Board meetings: Attendance fee

R3 000 R3 000

Explanatory note for special resolution number 2

In terms of section 69(9) of the Companies Act, No. 71 of 2008, shareholders are required to approve the remuneration of non-

executive directors.

Special resolution number 3 – General authority to enter into funding agreements, provide loans or other financial

assistance

“RESOLVED THAT, subject to the approval of 75% of the members present in person and by proxy, and entitled to vote at the

meeting, in terms of section 45 of the Companies Act, No. 71 of 2008, the Company be and is hereby granted a general approval

authorising that the Company and or any one or more of its wholly-owned subsidiary companies incorporated in South Africa to

enter into direct or indirect funding agreements, guarantee a loan or other obligations, secure any debt or obligation, or to provide

loans or financial assistance between any one or more of the subsidiary companies from time to time, subject to the provisions of

the JSE Limited’s Listings Requirements, the funding agreements and as the directors in their discretion deem fit.”

Explanatory note for special resolution number 3

The purpose of this resolution is to enable the Company to enter into funding arrangements with its subsidiary companies and to

allow inter-Group loans between subsidiary companies.

Voting and proxies

Certificated shareholders and dematerialised shareholders with “own name” registration

If you are unable to attend the annual general meeting of Huge shareholders to be held in the Woody Woods Boardroom, 146a

Kelvin Drive, Woodmead, 2191, at 10:00 on Friday, 12 July 2013 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, 146a Kelvin Drive, Woodmead, 2191, so as to be received by no later than 10:00 on

Wednesday, 10 July 2013.

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 Wednesday, 10 July 2013.

By order of the Board

Jean Michelle Tyndale-Biscoe

Company Secretary

29 May 2013

HUGE GROUP LIMITED

(Incorporated in the Republic of South Africa)

(Registration number 2006/023587/06)

(“Huge” or “the Company”)

Share code: HUG ISIN: ZAE000102042

XXVIII: FORM OF PROXY (for use by certificated and own name dematerialised shareholders only)

For use by certificated and “own name” registered dematerialised shareholders of the Company (“shareholders”) at the annual general meeting of Huge to be held at 10:00 on Friday, 12 July 2013 in the Woody Woods Boardroom, 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 VM Mokholo)

Ordinary resolution number 3 – Director retirement and re-election (Mr DG Gammie)

Ordinary resolution number 4 – Appointment of executive director (Mr D Deetlefs)

Ordinary resolution number 5 – Appointment and remuneration of Auditor

Ordinary resolution number 6 – Appointment of Combined Audit and Risk Committee member (Mr DR Gammie)

Ordinary resolution number 7 – Appointment of Combined Audit and Risk Committee member (Mr AD Potgieter)

Ordinary resolution number 8 – Appointment of Combine Audit and Risk Committee member (Mr SP Tredoux)

Ordinary resolution number 9 – Approval of remuneration policy

Ordinary resolution number 10 – General authority to allot and issue shares for cash

Ordinary resolution number 11 – Unissued shares under control of the directors

Special resolution number 1 – General authority to acquire (repurchase) 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 ______________________________________ 2013

Signature _____________________________________________________________________________________________

Assisted by me (where applicable)

Name __________________________ Capacity ___________________________ Signature __________________________

Notes to the form of proxy

1. This form of proxy is for use by certificated shareholders and dematerialised shareholders with “own name” registration whose shares are registered in their own names on the record date and who wish to appoint another person to represent them at the annual general meeting. If duly authorised, companies and other corporate bodies who are shareholders having shares

registered in their own names may appoint a proxy using this form of proxy, or may appoint a representative in accordance with the last paragraph below.

Other shareholders should not use this form. All beneficial holders who have dematerialised their shares through a Central Securities

Depository Participant (“CSDP”) or broker, and do not have their shares registered in their own name, must provide the CSDP or broker with their voting instructions. Alternatively, if they wish to attend the annual general meeting in person, they should request the CSDP or broker to provide them with a letter of representation in terms of the custody agreement entered into between the beneficial owner and the CSDP or

broker.

2. This form of proxy will not be effective at the annual general meeting unless received at the registered office of the Company at 146a Kelvin Drive, Woodmead, 2191, South Africa, not later than 10:00 on Wednesday, 10 July 2013.

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. I f, however, the

shareholder has provided further written instructions which accompany this form of proxy and which indicate how the form of proxy should vote or abstain from voting in any of the circumstances referred to in 6.1 to 6.4, then the form of proxy shall comply with those instructions.

7. If this proxy is signed by a person (signatory) on behalf of the shareholder, whether in terms of a power of attorney or otherwise, then this form of proxy will not be effective unless: 7.1 it is accompanied by a certified copy of the authority given by the shareholder to the signatory; or

7.2 the Company has already received a certified copy of that authority.

8. The chairman of the annual general meeting may, at the chairman’s discretion, accept or reject any form of proxy or other wri tten

appointment of a proxy which is received by the chairman prior to the time when the annual general meeting deals with a resolution or matter to which the appointment of the proxy relates, even if that appointment of a proxy has not been completed and/or received in accordance with these instructions. However, the chairman shall not accept any such appointment of a proxy unless the chairman is satisfied that it

reflects the intention of the shareholder appointing the proxy.

9. Any alterations made in this form of proxy must be initialled by the authorised signatory/ies.

10. This form of proxy is revoked if the shareholder who granted the proxy:

10.1 delivers a copy of the revocation instrument to the Company and to the proxy or proxies concerned, so that it is received by the Company by not later than 10:00 on Wednesday 10 July 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 Wednesday, 10 July 2013.

Summary of rights established by section 58 of the Companies Act, 71 of 2008 (“Companies Act”), as required in terms of sub-section 58(8)(b)(i): 1. A shareholder may at any time appoint any individual, including a non-shareholder of the Company, as a proxy to participate in, speak and

vote at a shareholders’ meeting on his/her behalf (section 58(1)(a)), or to give or withhold consent on behalf of the shareholder to a decision in terms of section 60 (shareholders acting other than at a meeting) (section 58(1)(b)).

2. A proxy appointment must be in writing, dated and signed by the shareholder, and remains valid for one year after the date on which it was

signed or any longer or shorter period expressly set out in the appointment, unless it is revoked in terms of paragraph 6.3 below or expires earlier in terms of paragraph 10.4 below (section 58(2)).

3. A shareholder may appoint two or more persons concurrently as proxies and may appoint more than one proxy to exercise voting rights

attached to different securities held by the shareholder (section 58(3)(a)).

4. A proxy may delegate his/her authority to act on behalf of the shareholder to another person, subject to any restriction set out in the instrument appointing the proxy (“proxy instrument”) (section 58(3)(b)).

5. A copy of the proxy instrument must be delivered to the Company, or to any other person acting on behalf of the Company, before the proxy exercises any rights of the shareholder at a shareholders’ meeting (section 58(3)(c)) and in terms of the Memorandum of Incorporation (“MOI”) of the Company at least 48 hours before the meeting commences.

6. Irrespective of the form of instrument used to appoint a proxy: 6.1. the appointment is suspended at any time and to the extent that the shareholder chooses to act directly and in person in the exercise

of any rights as a shareholder (section 58)4)(a));

6.2. the appointment is revocable unless the proxy appointment expressly states otherwise (section 58(4)(b)); and 6.3. if the appointment is revocable, a shareholder may revoke the proxy appointment by cancelling it in writing or by making a later,

inconsistent appointment of a proxy, and delivering a copy of the revocation instrument to the proxy and to the Company (sect ion

58(4)(c)).

7. The revocation of a proxy appointment constitutes a complete and final cancellation of the proxy’s au thority 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 exerc ised (section 58(8)(a));

10.2. the invitation or form of proxy instrument supplied by the Company must:

10.2.1. bear a reasonably prominent summary of the rights established in section 58 of the Companies Act (section 58(8)(b)(i)); 10.2.2. contain adequate blank space, immediately preceding the name(s) of any person(s) named in it, to enable a shareholder to

write the name, and if desired, an alternative name of a proxy chosen by the shareholder (section 58(8)(b)(ii)); and

10.2.3. provide adequate space for the shareholder to indicate whether the appointed proxy is to vote in favour of or against any resolution(s) to be put at the meeting, or is to abstain from voting (section 58(8)(b)(iii));

10.3. the Company must not require that the proxy appointment be made irrevocable (section 58(8)(c)); and

10.4. the proxy appointment remains valid only until the end of the meeting at which it was intended to be used, subject to paragraph 7 above (section 58(8)(d)).

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