Wrap Text
Unaudited condensed consolidated financial results for the six months ended 31 December 2017
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 2017
Headline earnings per share up 55.5%
2017: 58.08 cents
2016: 37.34 cents
Net asset value per share up 19.0%
2017: 1 270.47 cents
2016: 1 067.57 cents
Inventory days down 17.2%
2017: 70.7 days
2016: 85.4 days
Condensed consolidated statement of comprehensive income
Unaudited Unaudited Audited
6 months 6 months year-end
R000 31 Dec 2017 31 Dec 2016 30 Jun 2017
Revenue 2 645 718 2 607 254 5 243 147
Cost of sales (2 297 374) (2 278 185) (4 581 639)
Gross profit 348 344 329 069 661 508
Foreign currency losses (3 883) (2 970) (464)
Distribution, administrative and other operating expenses (257 569) (236 725) (487 352)
Profit from operations 86 892 89 374 173 692
Investment revenues 6 186 8 791 20 937
Finance costs (42 666) (54 083) (108 266)
Other losses (792) - (468)
Share of profit of associates 9 689 3 375 7 956
Profit before tax 59 309 47 457 93 851
Income tax expense (12 848) (12 406) (20 131)
Profit for the period 46 461 35 051 73 720
Other comprehensive income
Exchange losses on translation of foreign operations (2 881) (4 929) (7 740)
Other comprehensive income for the period, net of tax (2 881) (4 929) (7 740)
Total comprehensive income for the period 43 580 30 122 65 980
Profit attributable to:
Owners of the parent 45 966 35 084 73 091
Non-controlling interest 495 (33) 629
46 461 35 051 73 720
Total comprehensive income attributable to:
Owners of the parent 43 085 30 155 65 351
Non-controlling interest 495 (33) 629
43 580 30 122 65 980
Earnings and dividend per share (cents)
Weighted number of ordinary shares in issue 80 454 825 94 200 535 91 003 326
Ordinary shares in issue 76 000 000 90 700 000 83 000 000
Dividend per ordinary share 16.00 15.00 15.00
Basic earnings per ordinary share 57.13 37.24 80.32
Condensed consolidated statement of financial position
Unaudited Unaudited Audited
6 months 6 months year-end
R000 31 Dec 2017 31 Dec 2016 30 Jun 2017
ASSETS
Non-current assets
Property, plant and equipment 161 648 151 233 156 237
Goodwill 55 627 48 018 55 627
Intangible assets 43 204 16 622 37 889
Investments in associates 118 395 103 313 103 006
Other investments and loans 57 795 78 490 77 920
Deferred tax asset 17 497 15 961 16 572
454 166 413 637 447 251
Current assets
Inventories 882 431 1 056 957 1 078 035
Inventories in transit 207 032 70 305 128 375
Trade and other receivables 1 193 916 1 182 608 1 093 565
Foreign currency assets - 24 2 602
Bank balances and cash 310 506 142 552 230 371
2 593 885 2 452 446 2 532 948
TOTAL ASSETS 3 048 051 2 866 083 2 980 199
EQUITY AND LIABILITIES
Capital and reserves
Ordinary stated capital - 14 690 -
Retained earnings 967 271 948 803 969 164
Non-distributable reserve - 809 -
Foreign currency translation reserve (1 712) 3 980 1 169
Equity attributable to owners of the parent 965 559 968 282 970 333
Non-controlling interest 8 623 (614) 8 128
Total equity 974 182 967 668 978 461
Non-current liabilities
Long-term borrowings 4 729 2 764 5 637
Deferred tax liabilities 10 336 4 504 10 617
Deferred income 13 779 13 284 13 215
28 844 20 552 29 469
Current liabilities
Trade and other payables 1 499 328 1 598 744 1 715 277
Foreign currency liabilities 66 252 5 621 4 481
Deferred income 12 219 14 022 13 233
Bank overdrafts 467 226 259 476 239 278
2 045 025 1 877 863 1 972 269
Total liabilities 2 073 869 1 898 415 2 001 738
TOTAL EQUITY AND LIABILITIES 3 048 051 2 866 083 2 980 199
Condensed consolidated cash flow statement
Unaudited Unaudited Audited
6 months 6 months year-end
R000 31 Dec 2017 31 Dec 2016 30 Jun 2017
Operating activities
Cash receipts from customers 2 532 624 2 513 194 5 251 783
Cash paid to suppliers and employees (2 581 207) (2 507 326) (5 023 008)
Net cash (used in) from operations (48 583) 5 868 228 775
Investment revenues received 6 186 8 791 20 937
Finance costs paid (42 666) (54 083) (108 266)
Dividends paid (12 960) (13 950) (13 950)
Income taxes (received) paid 2 487 (11 068) (27 637)
Net cash (used in) from operating activities (95 536) (64 442) 99 859
Net cash used in investing activities (16 258) (25 944) (52 354)
Net cash from (used in) financing activities 191 929 (150 675) (200 747)
Net increase (decrease) in cash and cash equivalents 80 135 (241 061) (153 242)
Cash and cash equivalents at the beginning of the period 230 371 383 613 383 613
Cash and cash equivalents at the end of the period 310 506 142 552 230 371
Condensed consolidated statement of changes in equity
Non- Foreign currency Attributable Non-
Ordinary Retained distributable translation to owners of controlling
R000 stated capital earnings reserve reserve the parent interest Total
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
Net profit for the period - 38 007 - - 38 007 662 38 669
Other comprehensive income - - - (2 811) (2 811) - (2 811)
Dividends paid - - - - - - -
Buy-back of shares (14 690) (18 455) - - (33 145) - (33 145)
Acquisition of subsidiary - - - - - 8 080 8 080
Non-distributable reserves
recycled to retained earnings - 809 (809) - - - -
Balance at 30 June 2017 - 969 164 - 1 169 970 333 8 128 978 461
Net profit for the period - 45 966 - - 45 966 495 46 461
Other comprehensive income - - - (2 881) (2 881) - (2 881)
Dividends paid (12 960) - - (12 960) - (12 960)
Buy-back of shares - (34 899) - - (34 899) - (34 899)
Balance at 31 December 2017 - 967 271 - (1 712) 965 559 8 623 974 182
Condensed segmental analysis
Total Mustek Rectron
Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited
6 months 6 months 6 months 6 months 6 months 6 months
R000 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec
Business segments 2017 2016 2017 2016 2017 2016
Revenue 2 645 718 2 607 254 1 730 974 1 514 800 1 088 758 1 259 733
EBITDA* 101 237 106 413 81 624 72 821 31 339 42 168
Depreciation and amortisation (15 137) (17 039) (9 834) (11 991) (5 303) (5 048)
Profit (loss) from operations 86 100 89 374 71 790 60 830 26 036 37 120
Investment revenues 6 186 8 791 1 993 4 300 5 244 5 360
Finance costs (42 666) (54 083) (26 494) (27 631) (16 172) (26 452)
Share of profit of associates 9 689 3 375 - - - -
Profit (loss) before tax 59 309 47 457 47 289 37 499 15 108 16 028
Income tax (expense) benefit (12 848) (12 406) (12 244) (10 465) (4 182) (4 586)
Profit (loss) for the period 46 461 35 051 35 045 27 034 10 926 11 442
Attributable to:
Owners of the parent 45 966 35 084 35 070 27 067 10 406 11 442
Non-controlling interest 495 (33) (25) (33) 520 -
46 461 35 051 35 045 27 034 10 926 11 442
* Earnings before interest, taxation, depreciation and amortisation.
Condensed segmental analysis
Group Eliminations
Unaudited Unaudited Unaudited Unaudited
6 months 6 months 6 months 6 months
R000 31 Dec 31 Dec 31 Dec 31 Dec
Business segments 2017 2016 2017 2016
Revenue - - (174 014) (167 279)
EBITDA* (11 726) (8 576) - -
Depreciation and amortisation - - - -
Profit (loss) from operations (11 726) (8 576) - -
Investment revenues 1 155 2 173 (2 206) (3 042)
Finance costs (2 206) (3 042) 2 206 3 042
Share of profit of associates 9 689 3 375 - -
Profit (loss) before tax (3 088) (6 070) - -
Income tax (expense) benefit 3 578 2 645 - -
Profit (loss) for the period 490 (3 425) - -
Attributable to:
Owners of the parent 490 (3 425) - -
Non-controlling interest - - - -
490 (3 425) - -
* 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
R000 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec
Geographical segments 2017 2016 2017 2016 2017 2016 2017 2016
Revenue 2 645 718 2 607 254 2 623 885 2 584 826 21 086 21 681 747 747
Profit (loss) before tax 59 309 47 457 57 861 47 162 1 045 (1 205) 403 1 500
Income tax (expense) benefit (12 848) (12 406) (12 778) (12 512) 71 361 (141) (255)
Profit (loss) for the period 46 461 35 051 45 083 34 650 1 116 (844) 262 1 245
Attributable to:
Owners of the parent 45 966 35 084 44 588 34 683 1 116 (844) 262 1 245
Non-controlling interest 495 (33) 495 (33) - - - -
46 461 35 051 45 083 34 650 1 116 (844) 262 1 245
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 2017 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 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 2017.
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.
Headline earnings per ordinary share
Unaudited Unaudited Audited
6 months 6 months year-end
31 Dec 31 Dec 30 Jun
2017 2016 2017
Headline earnings per share (cents) 58.08 37.34 81.26
Reconciliation between basic and headline earnings (R000)
Basic earnings attributable to owners of the parent 45 966 35 084 73 091
Group's share of (profit) loss on disposal of property, plant and equipment (32) 93 391
Group's share of loss on sale of investment 792 - -
Group's share of loss on impairment of goodwill - - 468
Headline earnings 46 726 35 177 73 950
Net asset value per share (cents) 1 270.47 1 067.57 1 169.08
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).
R000 Level Unaudited Unaudited Audited
Financial assets and liabilities 6 months 6 months year-end
31 Dec 31 Dec 30 Jun
2017 2016 2017
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 are included in
foreign currency losses. 2 - 24 2 602
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
are included in foreign currency losses. 2 66 252 5 621 4 481
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 - 18 742 18 742
Operating results
The Group's revenue increased by 1.5% to R2.65 billion (31 December 2016: R2.61 billion). The slowdown in growth was
the result of a decision by management to reduce its supply to retailers. This decision had a positive effect on the
gross profit margin that increased from 12.6% to 13.2%.
The ZAR/USD exchange rate was extremely volatile during the period under review and the Group's hedging policy proved
effective as forex losses were limited to R3.9 million (31 December 2016: R3.0 million).
Distribution, administrative and other operating expenses from continuing operations were well controlled, increasing
by 8.8%. The above inflation increase was mainly caused by an increase in the provision for bad debts.
Net finance charges decreased from R45.3 million to R36.5 mainly as a result of a reduction in inventory. 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 R3.1 million (31 December 2016: R9.9 million) was classified as finance costs, as opposed
to forex losses. The contribution from our associates increased mainly due to an increase in the contribution from Sizwe
Africa IT Group Proprietary Limited and a reduced loss incurred at Yangtze Optics Africa Holdings Proprietary Limited
(YOA). The Group's share of YOA's equity accounted loss amounted to R0.8 million (31 December 2016: R2.0 million).
Management believes that this loss will be reversed in the period to June 2018.
Mustek's headline earnings per share is 55.5% higher at 58.08 cents (31 December 2016: 37.34 cents) and basic earnings
per share is 53.4% higher at 57.13 cents (31 December 2016: 37.24 cents).
Cash flow
The R48.6 million cash used in (31 December 2016: R5.9 million cash from) operations was mainly due to an increase in
receivables and a decrease in accounts payable. This was funded by bank overdraft facilities and is expected to reverse
in the period through to June 2018, in line with historic trends.
Inventory days improved by 17.2% to 70.7 days (31 December 2016: 85.4 days).
Transformation
Following an audit by an accredited verification agency, Mustek achieved a Level 1 BBBEE rating, using the amended ICT
sector codes.
Management has continued to meaningfully extend its initiatives in employment equity, skills development and corporate
social investment 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 operations 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.
Corporate activities
On 5 October 2017, Mustek disposed of its 20% investment in Zinox Technologies Limited (Zinox), a company incorporated
in Nigeria for a cash consideration of USD1 056 526. Prior to the transaction, Zinox declared a dividend of USD257 400
to the company and the total loss on the disposal of Zinox amounted to R0.8 million.
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.
Company and industry outlook
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 several best in class brands and products to service the mobility market including
Lenovo, Acer, Apple, Asus and Toshiba. Our Renewable Energy division is showing good, steady growth and our fibre-optic
cabling partner, YOA, is expected to contribute meaningfully in the years ahead.
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 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% until 2020 and we are excited to support our
partners, Epson, Brother and Fujitsu, to take advantage of this growth.
The growth in PC gaming and e-sports is being carefully monitored and new brands like MSI have been added to the product
portfolio to ensure we meet the needs of this market. We do however note the phenomenal rise in GPU sales based on
intense interest in Crypto currency mining by the public and supply is unable to meet the demand.
Although economic and market conditions are expected to remain difficult, the increased contribution from our associates
and the reduction in net finance costs as a result of lower inventory levels at both Mustek and Rectron, should
contribute to higher profitability. Lower inventory levels should also have a positive effect on gross profit margins.
The Group will continue to look for opportunities to add additional products to its product offering in order to
better utilise its infrastructure. The contributions from products such as Huawei Enterprise Solutions and Microsoft Volume
Licensing are expected to continue growing and although the gross profit margins might be lower on these products, net
profit should increase as the additional gross profit contributions from these products exceeds the additional variable
costs associated with these products.
In conjunction with strategic partners from across the ICT industry, Mustek is well positioned for the forthcoming
years.
Share repurchase programme
Mustek acquired 7 000 000 ordinary shares of its issued share capital on the open market for a purchase consideration
in aggregate of R34.9 million. The general repurchase commenced on 30 August 2017 and continued on a day-to-day basis as
market conditions allowed and in accordance with the JSE Limited (JSE) Listings Requirements until 12 December 2017.
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 2018. This programme will be effected in accordance with the terms
of the authority granted by shareholders at the annual general meeting held on 2 November 2017. 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 Chief Executive Officer
Neels Coetzee Financial Director (preparer of provisional Group results)
22 February 2018
Midrand
Corporate information
Company Secretary: Sirkien van Schalkwyk,
Office C0101b, Elardus Park Centre, 837 Barnard Street, Elarduspark,
Pretoria, 0181 PO Box 4896, Rietvalleirand, 0174 Telephone: +27 (0) 12 751 6000
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
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Date: 22/02/2018 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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