Wrap Text
Unaudited condensed consolidated financial results for the six months ended 31 December 2016
MUSTEK LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1987/070161/06)
Share code: MST
ISIN: ZAE000012373
(“Mustek” or “the Group”)
Unaudited condensed consolidated financial results for the six months ended 31 December 2016
Revenue from continuing operations up 5.6%
2016: R2.61 billion
2015: R2.47 billion
Net asset value per share up 8.6%
2016: 1 067.57 cents
2015: 983.47 cents
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited Unaudited Audited
6 months 6 months year-end
31 December 31 December 30 June
2016 2015 2016
R000 R000 R000
ASSETS
Non-current assets
Property, plant and equipment 151 233 149 628 152 458
Intangible assets 64 640 67 710 67 059
Investments in associates 101 313 67 093 84 848
Other investments and loans 80 490 76 897 67 809
Deferred tax asset 15 961 19 937 17 312
413 637 381 265 389 486
Current assets
Inventories 1 056 957 1 320 835 1 111 929
Inventories in transit 70 305 113 539 95 753
Trade and other receivables 1 168 883 1 280 130 1 074 823
Foreign currency assets 24 32 247 3 059
Tax assets 13 725 8 978 14 219
Bank balances and cash 142 552 196 558 383 613
Short-term loans - - 12 676
2 452 446 2 952 287 2 696 072
Assets classified as held-for-sale - 164 427 -
Total assets 2 866 083 3 497 979 3 085 558
EQUITY AND LIABILITIES
Capital and reserves
Ordinary stated capital 14 690 62 458 50 531
Retained earnings 948 803 911 374 927 669
Non-distributable reserve 809 809 809
Foreign currency translation reserve 3 980 8 831 8 909
Equity attributable to owners of the parent 968 282 983 472 987 918
Non-controlling interest (614) 14 302 (581)
Total equity 967 668 997 774 987 337
Non-current liabilities
Long-term borrowings 2 764 1 464 499
Deferred tax liabilities 4 504 4 571 4 504
Deferred income 13 284 13 706 12 632
20 552 19 741 17 635
Current liabilities
Short-term borrowings 1 041 752 555
Trade and other payables 1 595 487 1 647 127 1 670 595
Foreign currency liabilities 5 621 - 10 031
Deferred income 14 022 16 382 19 284
Tax liabilities 2 216 4 749 2 408
Bank overdrafts 259 476 674 393 377 713
1 877 863 2 343 403 2 080 586
Liabilities directly associated with assets
classified as held-for-sale - 137 061 -
Total liabilities 1 898 415 2 500 205 2 098 221
TOTAL EQUITY AND LIABILITIES 2 866 083 3 497 979 3 085 558
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited
6 months 6 months year-end
31 December 31 December 30 June
2016 2015 2016
R000 R000 R000
Revenue 2 607 254 2 468 276 5 286 384
Cost of sales (2 278 185) (2 113 411) (4 605 634)
Gross profit 329 069 354 865 680 750
Other income 2 606 2 354 3 465
Foreign currency losses (2 970) (6 857) (11 784)
Distribution, administrative and other operating expenses (239 331) (242 262) (483 603)
Profit from operations 89 374 108 100 188 828
Investment revenues 8 791 6 864 19 278
Finance costs (54 083) (46 960) (109 950)
Share of profit of associates 3 375 7 586 15 352
Profit before tax 47 457 75 590 113 508
Income tax expense (12 406) (19 383) (28 753)
Profit for the period from continuing operations 35 051 56 207 84 755
Discontinued operations
Loss for the period from discontinued operations - (2 225) (5 811)
Profit for the period 35 051 53 982 78 944
Other comprehensive income
Exchange (losses) profits on translation of foreign operations (4 929) 3 882 4 262
Other comprehensive income for the period, net of tax (4 929) 3 882 4 262
Total comprehensive income for the period 30 122 57 864 83 206
Profit attributable to:
Owners of the parent 35 084 52 343 74 630
Non-controlling interest (33) 1 639 4 314
35 051 53 982 78 944
Total comprehensive income attributable to:
Owners of the parent 30 155 56 225 78 590
Non-controlling interest (33) 1 639 4 616
30 122 57 864 83 206
Earnings and dividend per share (cents)
Weighted number of ordinary shares in issue 94 200 535 102 005 806 100 674 409
Ordinary shares in issue 90 700 000 100 000 000 98 000 000
Dividend per ordinary share 15.00 35.00 35.00
From continuing and discontinued operations (cents)
Headline earnings per ordinary share 37.34 51.67 76.88
Basic earnings per ordinary share 37.24 51.31 74.13
From continuing operations (cents)
Headline earnings per ordinary share 37.34 53.54 80.07
Basic earnings per ordinary share 37.24 53.19 79.59
From discontinued operations (cents)
Headline losses per ordinary share - (1.87) (3.20)
Basic losses per ordinary share - (1.87) (5.46)
Reconciliation between basic and headline earnings
Basic earnings attributable to owners of the parent 35 084 52 343 74 630
Group’s share of loss on disposal of property, plant and equipment 93 362 488
Group’s share of loss from disposal of shares in subsidiary - - 2 278
Headline earnings from continuing and discontinued operations 35 177 52 705 77 396
Group’s share of loss for the period from discontinued operations - 1 909 3 217
Headline earnings from continuing operations 35 177 54 614 80 613
Basic earnings attributable to owners of the parent 35 084 52 343 74 630
Group’s share of loss for the period from discontinued operations - 1 909 3 217
Basic earnings from continuing operations 35 084 54 252 77 847
Net asset value per share (cents) 1 067.57 983.47 1 008.08
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
Unaudited Unaudited Audited
6 months 6 months year-end
31 December 31 December 30 June
2016 2015 2016
R000 R000 R000
Operating activities
Cash receipts from customers 2 513 194 2 527 970 5 563 726
Cash paid to suppliers and employees (2 507 326) (2 946 674) (5 388 679)
Net cash from (used in) operations 5 868 (418 704) 175 047
Investment revenues received 8 791 6 867 19 281
Finance costs paid (54 083) (47 803) (110 793)
Dividends paid (13 950) (35 605) (35 605)
Income taxes paid (11 068) (20 153) (34 697)
Net cash (used in) from operating activities (64 442) (515 398) 13 233
Net cash used in investing activities (25 944) (23 490) (56 949)
Net cash (used in) from financing activities (150 675) 276 886 (32 503)
Net decrease in cash and cash equivalents (241 061) (262 002) (76 219)
Cash and cash equivalents at the beginning of the period 383 613 459 832 459 832
Cash and cash equivalents at the end of the period 142 552 197 830 383 613
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Foreign
Ordinary Non- currency Attributable Non-
stated Retained distributable translation to owners of controlling
capital earnings reserve reserve the parent interest Total
R000 R000 R000 R000 R000 R000 R000
Balance at 30 June 2015 93 354 894 636 809 4 949 993 748 19 268 1 013 016
Net profit for the period - 52 343 - - 52 343 1 639 53 982
Other comprehensive income - - - 3 882 3 882 - 3 882
Dividends paid - (35 605) - - (35 605) - (35 605)
Buy-back of shares (30 896) - - - (30 896) - (30 896)
Investment in subsidiary - - - - - (6 605) (6 605)
Balance at 31 December 2015 62 458 911 374 809 8 831 983 472 14 302 997 774
Net profit for the period - 22 287 - - 22 287 2 675 24 962
Other comprehensive income - - - 78 78 302 380
Buy-back of shares (11 927) - - - (11 927) - (11 927)
Acquisition of additional shareholding
in a controlled entity - - - - - (17 860) (17 860)
Premium on acquisition of additional
shareholding in a controlled entity - (5 992) - - (5 992) - (5 992)
Balance at 30 June 2016 50 531 927 669 809 8 909 987 918 (581) 987 337
Net profit for the period - 35 084 - - 35 084 (33) 35 051
Other comprehensive income - - - (4 929) (4 929) - (4 929)
Dividends paid - (13 950) - - (13 950) - (13 950)
Buy-back of shares (35 841) - - - (35 841) - (35 841)
Balance at 31 December 2016 14 690 948 803 809 3 980 968 282 (614) 967 668
CONDENSED SEGMENT ANALYSIS
Total Mustek Rectron Group Eliminations
Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited
6 months 6 months 6 months 6 months 6 months 6 months 6 months 6 months 6 months 6 months
31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 December
2016 2015 2016 2015 2016 2015 2016 2015 2016 2015
Business segments R000 R000 R000 R000 R000 R000 R000 R000 R000 R000
Revenue 2 607 254 2 468 276 1 514 800 1 523 663 1 259 733 1 099 630 - - (167 279) (155 017)
EBITDA* 106 413 121 584 72 821 82 047 42 168 48 062 (8 576) (8 525) - -
Depreciation and amortisation (17 039) (13 483) (11 991) (9 714) (5 048) (3 769) - - - -
Profit (loss) from operations 89 374 108 101 60 830 72 333 37 120 44 293 (8 576) (8 525) - -
Investment revenues 8 791 6 864 4 300 6 213 5 360 1 101 2 173 2 779 (3 042) (3 229)
Finance costs (54 083) (46 960) (27 631) (28 188) (26 452) (18 772) (3 042) (3 229) 3 042 3 229
Share of profit of associates 3 375 7 586 - - - - 3 375 7 586 - -
Profit (loss) before tax 47 457 75 591 37 499 50 358 16 028 26 622 (6 070) (1 389) - -
Income tax (expense) benefit (12 406) (19 383) (10 465) (13 646) (4 586) (7 346) 2 645 1 609 - -
Profit (loss) for the period
from continuing operations 35 051 56 208 27 034 36 712 11 442 19 276 (3 425) 220 - -
Discontinued operations
Loss for the period from
discontinued operations - (2 225) - - - (2 225) - - - -
Profit (loss) for the period 35 051 53 983 27 034 36 712 11 442 17 051 (3 425) 220 - -
Attributable to:
Owners of the parent 35 084 52 344 27 034 36 712 11 442 17 367 (3 392) (1 735) - -
Non-controlling interest (33) 1 639 - - - (316) (33) 1 955 - -
35 051 53 983 27 034 36 712 11 442 17 051 (3 425) 220 - -
* Earnings before interest, taxation, depreciation and amortisation.
Total South Africa East Africa Taiwan
Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited
6 months 6 months 6 months 6 months 6 months 6 months 6 months 6 months
31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 December
2016 2015 2016 2015 2016 2015 2016 2015
Geographical segments R000 R000 R000 R000 R000 R000 R000 R000
Revenue 2 607 254 2 468 276 2 585 573 2 443 342 21 681 24 934 747 11 034
Profit (loss) before tax 47 457 75 591 48 662 80 673 (1 205) (5 082) 1 500 6 680
Income tax (expense) benefit (12 406) (19 383) (12 767) (21 314) 361 1 931 (255) (961)
Profit (loss) for the period
from continuing operations 35 051 56 208 35 895 59 359 (844) (3 151) 1 245 5 719
Discontinued operations
Loss for the period from
discontinued operations - (2 225) - (2 225) - -
Profit (loss) for the period 35 051 53 983 35 895 57 134 (844) (3 151) 1 245 5 719
Attributable to:
Owners of the parent 35 084 52 344 35 928 55 495 (844) (3 151) 1 245 5 719
Non-controlling interest (33) 1 639 (33) 1 639 - - - -
35 051 53 983 35 895 57 134 (844) (3 151) 1 245 5 719
COMMENTARY
Corporate information
Mustek is a public company incorporated and domiciled in South Africa. The main business of Mustek, its subsidiaries,
joint ventures and associates is the assembling, marketing and distribution of Information Communication Technology
(ICT) products and services.
Basis of preparation
The unaudited condensed financial information for the period ended 31 December 2016 has been prepared in accordance
with the framework concepts and measurement and recognition requirements of International Financial Reporting Standards
(IFRS), the SAICA Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting Pronouncements
as issued by the Financial Reporting Standards Council, the information at a minimum required by IAS 34 Interim
Financial Reporting, the Listings Requirements of the JSE Limited (JSE) and the requirements of the Companies Act of
South Africa. This set of condensed financial information, which is based on reasonable judgements and estimates, have been
prepared using accounting policies that comply with IFRS. These are consistent with those applied in the audited consolidated
financial statements for the year ended 30 June 2016.
Audit report
The directors take full responsibility for the preparation of this condensed report. Any reference to future financial
performance included in this announcement has not been reviewed or reported on by the company’s auditors.
Fair value measurement of financial instruments
Fair value measurements of financial assets and liabilities are analysed as follows:
• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical
assets or liabilities;
• Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly (ie as prices) or indirectly (ie derived from prices); and
• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or
liability that are not based on observable market data (unobservable inputs).
Financial assets and liabilities
Unaudited Unaudited Audited
6 months 6 months year-end
31 December 31 December 30 June
2016 2015 2016
Level R000 R000 R000
Held-for-trading: Foreign currency assets
These financial assets consist of foreign currency forward
contracts and options, and are measured using discounted
cash flows. Future cash flows are estimated based on the
observable yield curves of forward interest rates at the
end of the reporting period, as well as contract interest
rates. The revaluation of these assets is included in foreign
currency losses. 2 24 32 247 3 059
Held-for-trading: Foreign currency liabilities
These financial liabilities consist of foreign currency
forward contracts and options, and are measured using
discounted cash flows. Future cash flows are estimated based
on the observable yield curves of forward interest rates at
the end of the reporting period, as well as contract interest
rates. The revaluation of these assets is included in foreign
currency losses. 2 5 621 - 10 031
Available-for-sale: Other investments and loans
This financial asset consists of shares held in Zinox
Technologies Limited. The inputs used to measure the fair value
of this investment are the Group’s share of the net asset value
of Zinox Technologies Limited. As the fair value approximates
the carrying value of this asset, no revaluation was done during
the reporting periods presented. 3 18 741 18 741 18 741
Operating results
The Group’s revenue from continuing operations increased by 5.6% to R2.61 billion (31 December 2015: R2.47 billion).
The major reason for the slowdown in growth was the reduction in the spend from the government sector.
The gross profit percentage from continuing operations reduced from 14.4% to 12.6% and was marginally down from the
12.9% reported for the year ended 30 June 2016, predominantly as a result of a strengthening Rand and the drive to reduce
inventory levels. Although the gross profit percentages achieved by products such as Huawei Enterprise Solutions and
Microsoft Volume Licensing are lower, their contributions to profit are expected to continue growing.
The Group’s hedging policy proved effective, as forex losses from continuing operations, which includes the cost of
forward points, was R3.0 million compared to R6.9 million in the comparative period.
Distribution, administrative and other operating expenses from continuing operations were well controlled, decreasing
by 1.2%. This is despite a once-off R3.7 million spent on retrenchment costs.
Although the Group has been negatively affected by an increase in net finance charges from continuing operations from
R40.1 million to R45.3 million, it was an improvement when compared to the R50.6 million incurred during the second half
of the 2016 financial year. Working capital management continues to be a driver of profitability and is currently
receiving management’s full attention. The Group applies hedge accounting where the requirements of IAS 39 have been met to
separate the interest and spot elements from the forward contracts, and R9.9 million (31 December 2015: R7.0 million) was
classified as finance costs, as opposed to forex losses.
The contribution from our associates decreased mainly due to the pre-production expenses incurred at Yangtze Optics
Africa Holdings Proprietary Limited (YOA). The Group’s share of losses equity accounted amounted to R2.0 million. All the
required manufacturing equipment was completely installed and commissioned during November 2016 and core employees based
both in South Africa and China are now fully trained. YOA already secured supply contracts in the fibre-to-the-home
(FTTH) market amid a global shortage of cable as demand increases. YOA forecasts that approximately 50% of its production
capacity will be utilised within the first year of operation, which equates to a market share of around 30% in this niche
sector.
As a result, Mustek’s headline earnings per share is 27.7% lower at 37.34 cents (31 December 2015: 51.67 cents) and
basic earnings per share is 27.4% lower at 37.24 cents (31 December 2015: 51.31 cents).
Cash flow
The R5.9 million cash generated from operations is a significant improvement on the R418.7 million cash used in
operations reported at 31 December 2015.
Inventory days improved by 25.7% to 85.4 days (31 December 2015: 115.0 days).
Transformation
Following an audit by an accredited verification agency, Mustek retained its Level 2 BBBEE rating, using the
ICT sector codes.
Management has continued to meaningfully extend its initiatives in employment equity, skills development and corporate
social investment (CSI) during the period. The Group is committed to a process of further transformation and economic
empowerment of its stakeholders, such that an acceptable balance between the operatives and commercial benefits of such
a process can be achieved, thereby ensuring the sustainability and prosperity of the Group in a competitive market
sector.
Board of directors
No changes were made to the board during the period under review.
Retirement benefit plan
The Mustek Group Retirement Fund is a defined contribution fund and payments to the plan are expensed as they fall
due. The majority of the Group’s employees belong to this fund. The Group does not provide additional post-retirement
benefits.
Environmental, social and governance aspects
The Group subscribes to and complies in all material aspects with the Code on Corporate Governance Practices and
Conduct as contained in the King III Report on Corporate Governance.
Mustek is committed to transparent and integrated reporting in the spirit of King III and the Global Reporting
Initiative (GRI). We are accordingly continuously reviewing our corporate governance practices and are enhancing our
internal information gathering systems to provide the quality and type of information required for authentically
integrated annual reports.
Mustek has successfully maintained its ISO 14001 certification since 2004 and has not been sanctioned or fined for
non-compliance with environmental laws and regulations.
Mustek has a consistent record in community support and CSI. The Group focuses its CSI efforts on children’s needs -
in particular, their education - but also supports charities, sporting events and community facilities.
For more than a decade, we have conducted a comprehensive HIV/Aids strategy and programme that also provides
antiretroviral drugs to HIV-positive staff.
Company and industry outlook
According to the International Data Corporation, ICT spending in South Africa will top USD26.6 billion in 2017 as
organisations increasingly embrace digital transformation initiatives in a bid to streamline their costs and bolster their
flexibility. It is expected that communication, finance, and government will be the biggest-spending verticals in 2017,
but healthcare, transportation, and utilities are expected to be the fastest growing over the five-year forecast period.
The three pillars that constantly evolve and change are communications, mobility and energy and Mustek is well
positioned to service and add value in those pillars with our Huawei Enterprise portfolio offering and Hytera, a provider of
radio communication technology. We have a number of best in class brands and products to service the mobility market
including Lenovo, Acer, Asus and Toshiba. Our Renewable Energy division is showing good, steady growth and newest addition to
our portfolio is the world’s number one solar panel player, GCL. Our fibre-optic cabling partner, YOA, officially
opened its manufacturing plant in KwaZulu-Natal in January. This comes amid a global shortage of cabling as demand for FTTH
increases.
The smart education and learning market is expected to grow as more education institutions realise the importance of
digitisation in the mobile and connected world. We are excited to be able to support schools and universities with
digital education deployment and to assist them in taking advantage of this growth opportunity. As an early adopter of
3D printing we expect this product line to show positive growth in the coming years as the line-up becomes mainstream.
The document scanning market is expected to grow at a compound annual growth rate of 13.85% between 2016 and 2020 and we are
excited to support our partners, Epson, Brother and Fujitsu, to take advantage of this growth.
It is clear that the Internet of Things, including home automation, security, personal/medical health and fitness,
self-driving cars, etc are getting major coverage at the moment. We at Mustek are carefully seeking alliances with the
players that will translate to our unique geography and provide appropriate opportunities.
Although economic and market conditions are expected to remain difficult into the second half of the financial year,
net finance costs should reduce in line with lower inventory levels at both Mustek and Rectron. Lower inventory levels
should also have a positive effect on gross profit margins.
In conjunction with strategic partners from across the ICT industry, Mustek is well positioned for the forthcoming
years.
Share repurchase programme
Mustek acquired 7 300 000 ordinary shares of its issued share capital on the open market for a purchase consideration
in aggregate of R35 840 617. The general repurchase commenced on 1 September 2016 and continued on a day-to-day basis as
market conditions allowed and in accordance with the JSE Listings Requirements until 7 December 2016.
The repurchase of shares will continue to be considered by the board in conjunction with an evaluation of current and
future funding requirements in the period to 30 June 2017. This programme will be effected in accordance with the terms
of the authority granted by shareholders at the annual general meeting held on 8 December 2016. It is currently intended
that any shares purchased will be cancelled and de-listed. The market will be notified in accordance with applicable
listing rules and regulations if and when purchases are made.
Dividend
The declaration of cash dividends will continue to be considered by the board in conjunction with an evaluation of
current and future funding requirements and opportunities to repurchase shares. It will be adjusted to levels considered
appropriate at the time of declaration.
Mustek’s continued commitments to optimal cash utilisation will mean that cash generated by the operations will be
used to fund our growth and reduce our debt. In line with the dividend policy, no interim dividend will be paid.
Post-balance sheet events
There have been no significant events subsequent to period-end up until the date of this report that requires
adjustment or disclosure.
On behalf of the Board of directors
David Kan Neels Coetzee
Chief Executive Officer Financial Director (preparer of provisional Group results)
23 February 2017
CORPORATE INFORMATION:
Company Secretary: Sirkien van Schalkwyk. 1 Carlsberg, 430 Nieuwenhuyzen Street, Erasmuskloof Extension 2, 0181.
Postal address: PO Box 4896, Rietvalleirand, 0174, South Africa. Telephone: +27 (0) 12 751 6000.
Directors: Rev Dr VC Mehana# (Chairman), DC Kan (Chief Executive Officer), CJ Coetzee (Financial Director), H Engelbrecht,
LL Dhlamini*, Dr ME Gama*, RB Patmore*
#Non-executive Director *Independent Non-executive Director
Transfer secretaries: Computershare Investor Services Proprietary Limited. Rosebank Towers, 15 Biermann Avenue, Rosebank,
Johannesburg, 2196, South Africa. Postal address: PO Box 61051, Marshalltown, 2107, South Africa. Telephone: +27 (0) 11 370 5000.
Registered office: 322 15th Road, Randjespark, Midrand, 1685. Postal address: PO Box 1638, Parklands, 2121.
Contact numbers: Telephone: +27 (0) 11 237 1000 Facsimile: +27 (0) 11 314 5039 Email: ltd@mustek.co.za.
Sponsor: Deloitte & Touche Sponsor Services Proprietary Limited.
www.mustek.co.za
Date: 23/02/2017 08:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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