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(REGISTRATION NUMBER 87/70161/06)
(FORMERLY MUSTEK ELECTRONICS (PTY) LIMITED)
- CORE BUSINESS REVENUE UP 45%
- HEADLINE EARNINGS UP 40%
- MECER UNITS DELIVERED - UP 30%
- MUSTEK BOARD STRENGTHENED
FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 1998
31 DECEMBER 1998
UNAUDITED UNAUDITED AUDITED
SIX MONTHS SIX MONTHS YEAR
31 DEC 98 31 DEC 98 30 JUNE 98
R'000 R'000 R'000
INCOME STATEMENT
TURNOVER 569,237 629,699 1,101,099
- CORE BUSINESS 569,237 392,350 823,749
- NON-CORE BUSINESS - 237,349 277,350
OPERATING INCOME
BEFORE INTEREST 56,430 38,506 74,897
- CORE BUSINESS 56,430 32,921 64,906
- NON-CORE BUSINESS - 5,585 9,991
FINANCE COSTS 16,804 3,193 19,617
OPERATING INCOME 39,626 35,313 55,280
OTHER INCOME 27,296 805 55,240
NET INCOME BEFORE
TAXATION 66,922 36,118 110,520
TAXATION 7,948 8,271 21,186
NET INCOME AFTER
TAXATION 58,974 27,847 89,334
SHARE OF ASSOCIATE
COMPANIES' RETAINED
EARNINGS 2,626 - -
NET INCOME 61,600 27,847 89,334
OUTSIDE SHAREHOLDERS'
INTERESTS 333 2,081 3,257
NET INCOME ATTRIBUTABLE
TO ORDINARY SHAREHOLDERS 61,267 25,766 86,077
TRANSFER TO NON-
DISTRIBUTABLE RESERVES 25,211 - 25,908
RETAINED INCOME FOR
THE YEAR 36,056 25,766 60,169
NUMBER OF SHARES 99,896,533 100,087,674 98,061,533
EARNINGS PER SHARE
(CENTS) 61.33 25.74 87,78
HEADLINE EARNINGS PER
SHARE (CENTS) 36.09 25.74 61.36
BALANCE SHEET
SHARE CAPITAL 799 801 784
SHARE PREMIUM 73,538 79,040 59,056
DISTRIBUTABLE RESERVES 182,979 112,522 146,925
NON-DISTRIBUTABLE
RESERVES 60,752 10,640 35,541
SHAREHOLDERS' FUNDS 318,068 203,003 242,306
OUTSIDE SHAREHOLDERS 1,174 11,633 6,738
LONG-TERM LIABILITIES 8,016 12,797 8,702
TOTAL CAPITAL EMPLOYED 327,258 227,433 257,746
FIXED ASSETS 9,622 17,752 11,232
GOODWILL 35,697 52,781 36,570
DEFERRED TAXATION 178 813 178
INVESTMENTS AND LOANS 43,283 15,148 62,747
ASSOCIATE COMPANY 38,526 1,950 -
CURRENT ASSETS 437,871 322,512 333,712
INVENTORY 220,999 134,584 167,128
ACCOUNTS RECEIVABLE 212,354 176,238 160,256
TAXATION 4,518 943
BANK BALANCES AND CASH - 10,747 6,328
CURRENT LIABILITIES 237,919 183,523 186,693
ACCOUNTS PAYABLE 200,651 131,225 184,317
TAXATION - - 2,060
BANK OVERDRAFT 36,943 42,698 -
SHORT-TERM LIABILITIES 325 9,600 316
NET CURRENT ASSETS 199,952 138,989 147,019
TOTAL EMPLOYMENT OF
CAPITAL 327,258 227,433 257,746
CASH FLOW STATEMENT
CASH FLOW FROM OPERATIONS
CASH (APPLIED TO)
GENERATED FROM
OPERATIONS (36,801) 31,111 109,584
FINANCE COSTS (16,804) (3,193) (19,617)
TAXATION PAID (12,801) (17,074) (27,053)
(66,406) 10,844 62,914
CASH FLOW FROM INVESTING
ACTIVITIES 8,775 (10,711) (12,819)
- - -
CASH FLOW FROM
FINANCING ACTIVITIES 14,351 527 (1,872)
NET CASH (UTILISED)
RETAINED (43,280) 660 48,223
CASH EQUIVALENTS AT
BEGINNING OF PERIOD 6,012 (42,211) (42,211)
CASH EQUIVALENTS AT
END OF PERIOD (37,268) (41,551) 6,012
COMMENTS
REVIEW OF TRADING RESULTS:
TRADING PERFORMANCE IN MUSTEK'S CORE BUSINESS CONTINUED TO SHOW STRONG DEMAND
FOR PCS AND PERIPHERAL IT PRODUCTS. OPERATING MARGINS INCREASED AS A RESULT OF
THE RISE IN TURNOVER VOLUME TOGETHER WITH IMPROVED EFFICIENCIES IN MUSTEK'S
DISTRIBUTION INFRASTRUCTURE AND TIGHT CONTROL OVER COSTS AND OVERHEADS.
HEADLINE EARNINGS PER SHARE INCREASED TO 36,1 CENTS FROM 25,7 CENTS FOR THE
CORRESPONDING PERIOD IN 1997. CORE BUSINESS REVENUES INCREASED TO R569 MILLION
FROM R392 MILLION. OTHER INCOME WAS DERIVED MAINLY FROM THE VALUE ADDED TO
SHAREHOLDERS' FUNDS BY RECTRON HOLDINGS LIMITED, PREVIOUSLY A MUSTEK
SUBSIDIARY, LISTING ON THE JSE ON 11 NOVEMBER 1998. THIS SURPLUS WAS
TRANSFERRED TO NON-DISTRIBUTABLE RESERVES.
THE COMBINED EFFECT OF THE RAND'S DEPRECIATION AND THE SIGNIFICANT INCREASE IN
SALES OF COMPAQ REQUIRED SUBSTANTIAL ADDITIONAL INVESTMENT IN WORKING CAPITAL
AS AT 31 DECEMBER 1998, PARTICULARLY TO STOCK UP FOR PEAK SALES VOLUMES
ANTICIPATED IN THE NEXT SIX MONTHS TO 30 JUNE 1999. IT IS, HOWEVER, EXPECTED
THAT LEVELS OF WORKING CAPITAL WILL REVERT TO NORMAL IN THE PERIOD TO YEAR-END.
FOREIGN EXCHANGE LOSSES AMOUNTED TO R8,49 MILLION AND IS INCLUDED UNDER FINANCE
COSTS. THIS COST HAS RESULTED FROM THE ENORMOUS VOLITILITY OF THE RAND AGAINST
THE US DOLLAR AND THE MATCHING OF FORWARD EXCHANGE CONTRACTS DURING THE PERIOD.
A LARGE PORTION OF THIS COST IS RECOVERED IN THE INCREASED REVENUES FROM SALES
AND IS EVIDENCED BY INCREASED OPERATING MARGINS.
CORE DISTRIBUTION BUSINESS
MUSTEK ELECTRONICS DIVISION'S OWN-BRAND MECER CONTINUED TO DOMINATE THE SOUTH
AFRICAN PERSONAL COMPUTER MARKET FOR THE SEVENTH CONSECUTIVE YEAR. THE BMI
TECHKNOWLEGE REPORT SHOWED THAT MECER INCREASED ITS MARKET SHARE TO 15,8% FOR
THE CALENDAR YEAR 1998, WHICH REPRESENTS AN INCREASE OF 30% IN PCS DELIVERED.
DURING THE SIX MONTHS UNDER REVIEW, MECER MAINTAINED ITS MARKET SHARE AT 15,2%
OF THE LOCAL MARKET. IT ALSO MAINTAINED OPERATING MARGINS, DESPITE A
SUBSTANTIAL INCREASE IN SALES OF COMPAQ PRODUCTS AT LOWER MARGINS THAN MECER'S
AVERAGE GROSS MARGIN.
MECER CORPORATE DIVISION'S GROWTH INITIATIVES INTO THE LARGE CORPORATE AND
GOVERNMENT MARKET SECTORS WERE REWARDED WITH SALES THROUGH VALUE-ADDED
RESELLERS (VARS) AND BUSINESS PARTNERS INCREASING BY 243% OVER THE SIX-MONTH
PERIOD.
INTERNATIONAL BRAND DIVISION EXCEEDED TARGETED SALES OF COMPAQ PRODUCTS BY 224%
FOLLOWING THE CONCLUSION OF THE COMPAQ DISTRIBUTION AGREEMENT IN JUNE 1998. THE
ACHIEVEMENT UNDERLINES MUSTEK'S EXPERTISE IN DISTRIBUTION LOGISTICS, IN
PARTICULAR ITS ABILITY TO CAPITALISE ON ITS DISTRIBUTION INFRASTRUCTURE AND
USING THE STRENGTH OF ITS DISTRIBUTION CHANNEL AT LITTLE ADDITIONAL COST.
MUSTEK ALSO BECAME THE NUMBER ONE SA DISTRIBUTOR FOR EPSON PRODUCTS, FOLLOWING
THE CONCLUSION OF THIS DISTRIBUTION AGREEMENT IN SEPTEMBER 1998.
POS INTERNATIONAL GROUP EXPERIENCED ONGOING STRONG DEMAND FOR ITS SPECIALISED
PRODUCTS AND CONTINUED TO EXPAND MUSTEK'S CORE DISTRIBUTION BUSINESS. THIS
GROUP IS ON TARGET TO MEET ITS EARNING'S FORECAST FOR THE YEAR TO 30 JUNE 1999.
OTHER DISTRIBUTION DIVISIONS
BROTHER BUSINESS MACHINES REPORTED PLEASING LEVELS OF PROFITABILITY IN ITS
RESULTS. TRADING PERFORMANCE SHOWED EVIDENCE OF STRONG RELATIONSHIPS IN ITS
CORE DISTRIBUTION BUSINESS WITH GOVERNMENT. BROTHER WILL CONTINUE TO BENEFIT IN
THE REMAINING SIX MONTHS FROM BEING AWARDED A MAJOR SHARE OF THE CURRENT RT50
GOVERNMENT SUPPLY CONTRACT. THE SUPPLY TERM OF THIS CONTRACT HAS BEEN EXTENDED,
ALONG WITH OTHER GOVERNMENT DEPARTMENT TENDER ORDERS.
RECTRON HOLDINGS LIMITED, NOW AN ASSOCIATE COMPANY FOLLOWING ITS LISTING ON THE
JSE, CONTINUED TO RECORD SUBSTANTIAL GROWTH. MUSTEK HOLDS A 43,5% STAKE IN
RECTRON. INTERIM RESULTS TO 31 DECEMBER 1998 REFLECTED ORGANIC GROWTH TURNOVER
OF 38% AND HEADLINE EARNINGS GROWTH OF 100% (24% BETTER THAN THE PROSPECTUS
FORECAST), WHILE MAINTAINING OPERATING MARGINS. EQUITY-ACCOUNTED-FOR-EARNINGS
AMOUNTED TO R2,6 MILLION FOR THE SIX-MONTH PERIOD. RECTRON EXPECTS TO MAINTAIN
THIS TREND DURING THE NEXT SIX MONTHS TO MEET ITS FULL-YEAR PROSPECTUS FORECAST
FOCUS
THE MUSTEK GROUP REMAINS FOCUSED ON PC/DP DEVICE DISTRIBUTION, PARTICULARLY
WITH ITS OWN-BRAND MECER AND ALL NECESSARY CORE SUPPORT FUNCTIONS. IT WILL
CONTINUE TO DIFFERENTIATE ITS PRODUCTS FOR DISTRIBUTION BY MOVING UP THE VALUE
CHAIN, IDENTIFYING OTHER INTERNATIONAL-BRAND PRODUCTS AND DEVELOPING
VALUE-ADDED DISTRIBUTION CHANNELS TO GROW ITS DISTRIBUTION BUSINESS.
EMPOWERMENT:
NUMSA NOW HOLDS 8,5% OF MUSTEK'S EQUITY, ACQUIRED IN TWO TRANCHES INVOLVING
SOME R70 MILLION. IT IS NUMSA'S STATED INTENTION TO INCREASE THIS STAKE TO 20%
IN THE FUTURE.
LITHATEK INVESTMENTS (PTY) LTD IS A NEWLY-FORMED BLACK-OWNED AND CONTROLLED
COMPANY, IN WHICH MUSTEK HOLDS A 49% STAKE. LITHATEK HOLDS 21% OF THE EQUITY IN
ATIO CORPORATION, THE TELEPHONY COMPANY, FOLLOWING DILUTION TO ENABLE NEW
AFRICA ADVISORS TO PARTICIPATE IN EQUITY AND TO PROVIDE INCENTIVES TO
MANAGEMENT. SHAREHOLDERS DECIDED NOT TO PROCEED WITH THE UNIHOLD MERGER. ATIO
IS CURRENTLY TRADING PROFITABLY AND THIS TREND IS EXPECTED TO CONTINUE.
LITHATEK RECENTLY ACQUIRED 40% OF THE EQUITY OF COMPUTERS ETC, A COMPANY OWNED,
CONTROLLED AND SKILLED BY PREVIOUSLY DISADVANTAGED INDIVIDUALS AND WHICH
PROVIDES COMPUTER SOLUTIONS TO A WIDE BASE OF CORPORATE CUSTOMERS IN THE
KWAZULU-NATAL AND GAUTENG REGIONS. THIS OPERATION IS SHOWING SIGNIFICANT GROWTH
IN REVENUES, TRADES PROFITABLY AND IS EXPECTED TO MEET ITS PROFIT FORECASTS.
EXPANSION
MUSTEK'S MUCH-NEEDED ADDITIONAL FACILITIES, WHICH WILL ADD A FURTHER 24 000
SQUARE METRES TO ITS EXISTING PREMISES IN MIDRAND, ARE ON TRACK FOR COMPLETION
BY 31 MARCH 1999. THIS EXPANSION WILL FACILITATE THE GROWTH INITIATIVES WHICH
HAVE PUT OUR EXISTING FACILITIES UNDER PRESSURE AND WILL PROVIDE ADDITIONAL
PRODUCTION, SALES, SUPPORT AND SERVICE SPACE.
STRATEGIC GROWTH INVESTMENTS
DURING THE PERIOD UNDER REVIEW A NUMBER OF STRATEGIC INVESTMENTS WERE MADE,
WHICH ENHANCE MUSTEK'S CORE BUSINESS. THESE INCLUDE AN ON-SITE SERVICE
BUSINESS, NOW INTEGRATED INTO MUSTEK; A 50% EQUITY STAKE IN A PC-ASSEMBLY
OPERATION IN THE PEOPLES REPUBLIC OF CHINA; A 33% EQUITY STAKE IN A COMPANY
DISTRIBUTING AN ELECTRONIC TAG USING UNIQUE RF TECHNOLOGY; AND A 50% EQUITY
STAKE IN A BUSINESS WHICH DISTRIBUTES A WORLD-PATENTED, REMOTE-ACCESSING
DIAGNOSTIC CARD AS WELL AS A Y2K CARD WHICH SOLVES THE YEAR 2000 COMPATIBILITY
PROBLEMS FOR MOST DATED COMPUTERS. ALL THESE INVESTMENTS ARE EXPECTED TO
ENHANCE EARNINGS IN THE SHORT-TERM.
STRENGTHENING OF BOARD
THE MUSTEK BOARD, WHICH HAS COMPRISED ONLY TWO EXECUTIVE DIRECTORS, HAS BEEN
STRENGTHENED BY THE APPOINTMENT OF DR DUARTE DA SILVA OF TAITA HOLDINGS AND
TONY WANG. WE ARE CONFIDENT THAT THIS WILL FACILITATE MUSTEK'S GROWTH IN THE
FUTURE.
TONY WANG, A TOP EXECUTIVE WHO HAS 15 YEARS' EXPERIENCE AND A PROVEN TRACK
RECORD IN THE INTERNATIONAL TECHNOLOGY MARKETS BOTH IN THE PACIFIC RIM AND
UNITED STATES, HAS BEEN APPOINTED TO HEAD UP MUSTEK'S INTERNATIONAL OPERATIONS
AND ROLL OUT NEW TECHNOLOGY PRODUCTS TO THE GLOBAL MARKET PLACE.
FUTURE PROSPECTS
MUSTEK IS COMMITTED TO RETAINING ITS LEADING POSITION IN THE SA PERSONAL
COMPUTER DISTRIBUTION MARKET, WHICH IS FORECAST BY THE IDC TO GROW AT 17,5% PER
ANNUM. BY RETAINING ITS DOMINANT MARKET SHARE IN ITS TRADITIONAL MARKET SECTORS
AND CONTINUING TO INCREASE ITS SHARE OF THE GOVERNMENT AND CORPORATE SECTORS,
IT IS EXPECTED THAT THE MECER BRAND WILL DELIVER MORE PCS TO THE LOCAL MARKET.
MUSTEK CONTINUES TO USE ITS RELATIONSHIP WITH INTEL 'DIRECT-ACCOUNT' STATUS,
WHICH PROVIDES THE GROUP WITH A UNIQUE LOCAL COMPETITIVE ADVANTAGE AND ENHANCES
FORWARD PLANNING OF PRODUCTS AND PRICING. OTHER SPECIAL RELATIONSHIPS WITH
MICROSOFT, COMPAQ, FUJITSU, EPSON, PQ AFRICA, UNISYS AND NUMSA/SOURCECOM
TECHNOLOGY CONTINUE TO ADD VOLUME AND VALUE TO THE DISTRIBUTION CHANNEL.
MUSTEK IS CURRENTLY DETERMINING A GLOBAL STRATEGY EXPLORING NEW MARKETS, WHICH
INCLUDE EXPANSION POSSIBILITIES IN THE PACIFIC RIM COUNTRIES AND SUB-SAHARAN
AFRICA.
MUSTEK FINANCE COMPANY IS PERFORMING WELL BY SUPPORTING THE DEMAND OF BOTH
CORPORATE AND CONSUMER MARKETS TO ACQUIRE ON RENTAL THE FULL RANGE OF MUSTEK
PRODUCTS.
THE YEAR 2000 COMPATIBILITY PROBLEMS WILL CONTINUE TO PROVIDE AN IMPETUS TO THE
NEED TO UPGRADE PCS DURING THE NEXT 12 MONTHS. MUSTEK IS WELL POSITIONED TO
TAKE FULL ADVANTAGE OF THIS OPPORTUNITY.
DIVIDENDS
MUSTEK RETAINS THE POLICY OF NOT DECLARING DIVIDENDS WHILE CASH FLOW CAN BE
BETTER EMPLOYED TO FURTHER INCREASE RETURNS TO SHAREHOLDERS.
ON BEHALF OF THE BOARD
CC KAN DAVID KAN MIKE HENNESSY
CHAIRMAN CHIEF EXECUTIVE OFFICER EXECUTIVE DIRECTOR
1 MARCH 1999.
MECER GETS THE VOTE
ISSUED BY: PREPARED BY:
MUSTEK LIMITED CORPORATE ADVANTAGE
CONTACT: MIKE HENNESSY CONTACT: HENDRIK VAN DER HEEVER
TEL: 082 410 3663 TEL: 082 895 1921
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