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Audited summarised consolidated financial results for the year ended 30 June 2018
Mustek Limited
Incorporated in the Republic of South Africa
Registration number: 1987/070161/06
Share code: MST
ISIN: ZAE000012373
"Mustek" or "the Group"
Audited summarised consolidated financial results for the year ended 30 June 2018
Headline earnings per share up 28.2% to 104.15 cents
2017: 81.26 cents
Net asset value per share up 15.4% to 1 348.54 cents
2017: 1 169.08 cents
Dividend per share up 37.5% to 22.00 cents
2017: 16.00 cents
Net cash generated from operations up 4.8% to R239.69 million
2017: R228.78 million
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 audited summarised consolidated financial information for the year ended 30 June 2018 has been prepared in
accordance with the framework concepts and measurement and recognition requirements of International Financial Reporting
Standards (IFRS), the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial
Reporting Pronouncements as issued by the Financial Reporting Standards Council, and as a minimum contain the information
required by IAS 34 Interim Financial Reporting, the Listings Requirements of the JSE Limited and the requirements of the
Companies Act of South Africa. The audited consolidated financial statements and this set of summarised financial
information, which are based on reasonable judgements and estimates, have been prepared using accounting policies that
comply with IFRS. The accounting policies are consistent with those applied in the consolidated financial statements
for the year ended 30 June 2017.
Audit report
Mustek’s independent auditor, Deloitte & Touche, has issued an unmodified opinion on the consolidated financial
statements and this set of summarised consolidated financial statements for the year ended 30 June 2018. The audit
was conducted in accordance with International Standards on Auditing. The directors take full responsibility for the
preparation of this provisional report and the financial information has been derived from the consolidated financial
statements and are consistent in all material aspects with the consolidated financial statements. Their unmodified
audit report for this set of summarised consolidated financial statements and the consolidated annual financial
statements are available for inspection at the company’s registered office. The auditor’s report does not necessarily
report on the information contained in this announcement. Shareholders are therefore advised that in order to obtain a
full understanding of the nature of the auditor’s engagement, they should obtain a full copy of the auditor’s report,
together with the accompanying financial information from the issuer’s registered office. Any reference to future
financial performance included in this announcement has not been reviewed or reported on by the company’s auditors.
Audited Audited
30 June 30 June
Headline earnings and dividend per ordinary share 2018 2017
Weighted number of ordinary shares in issue 77 802 385 91 003 326
Ordinary shares in issue 73 000 000 83 000 000
Dividend per ordinary share - paid (cents) 16.00 15.00
Dividend per ordinary share - proposed (cents) 22.00 16.00
Headline earnings per share (cents) 104.15 81.26
Reconciliation between basic and headline earnings (R000)
Basic earnings attributable to owners of the parent 79 807 73 091
Group’s share of loss on disposal of property, plant and equipment 434 391
Group’s share of loss on impairment of goodwill - 468
Group’s share of loss on disposal of investment 792 -
Headline earnings 81 033 73 950
Net asset value per share (cents) 1 348.54 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).
Audited Audited
30 June 30 June
2018 2017
Financial assets and liabilities Level 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 are included in
foreign currency losses 2 31 077 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 12 668 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
Operating results
The Group’s revenue increased by 8.2% to R5.67 billion (2017: R5.24 billion) mainly as a result of strong growth in
new products and services added to the Group’s portfolio over the last five years.
The gross profit percentage increased to 14.0% (2017: 12.6%) predominantly due to reduced sales to mass retailers
and a reduction in aged stock that sells at lower margins.
The Rand depreciated by 16.7% or R1.96 against the Dollar during the last quarter of the financial year. This sudden
movement negatively impacted the results and unrealised forex losses of R42.7 million (2017: R3.5 million) were
recorded and included as part of foreign currency losses. A substantial portion of this loss will be recovered
through a combination of higher selling prices and forward exchange contracts entered into after year-end at amounts
lower than the 30 June 2018 closing rate of R13.71.
Distribution, administrative and other operating expenses increased by 11.7%. Share appreciation rights are revalued
at each reporting period and a share-based payment expense of R6.7 million (2017: R1.4 million income) was included
in distribution, administrative and other operating expenses. Bonuses amounting to R7.0 million (2017: Rnil) also
contributed to the increase.
Net finance charges decreased from R87.3 million to R76.6 million and the reduction in inventory and accounts
receivable levels contributed to this saving. Working capital management continues to be a driver of profitability
and is currently receiving management’s full attention.
An improved performance from Sizwe Africa IT Group Proprietary Limited and a reduced loss from Yangtze Optics Africa
Holdings Proprietary Limited (YOA) saw the contribution from associates increase. Management believes that YOA will
be profitable in the 2019 financial year after securing and starting to supply a leading fibre company towards the
end of the financial year.
Mustek’s headline earnings per share is 28.2% higher at 104.15 cents (2017: 81.26 cents) and basic earnings per share
is 27.7% higher at 102.58 cents (2017: 80.32 cents).
Cash flow
The improvement in working capital levels contributed to cash generated from operations of R239.7 million (2017:
R228.8 million). Management continues to focus on optimal working capital management as it remains a driver of
profitability in our industry.
Inventory days improved by 15.8% to 72.3 days (2017: 85.9 days).
Trade and other receivable days improved by 17.9% to 62.5 days (2017: 76.1 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, while continuing to ensure 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 R14.4 million. Prior to the transaction, Zinox declared a
dividend of R3.5 million to the company and the total loss on the disposal of Zinox amounted to R0.8 million.
After acquiring a 99-year notarial lease on land in Cape Town for R9.6 million in the previous financial year, the
Group spent a further amount of R24.7 million developing the site and is planning to relocate its Cape Town offices
to the new premises during November 2018. It is estimated that a further R10.3 million will be spent to complete the
development.
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
Microsoft announced that it will no longer support Windows 7 after 14 January 2020 and we anticipate an acceleration
of the refresh cycle during the time leading up to this date.
Our investments in new product lines such as networking equipment, sustainable energy and fibre are starting to
contribute meaningfully to both revenue and profit. The growth in fibre to the home is not only assisting our fibre
sales, but also increasing the demand for new devices in order to fully benefit from the faster internet speeds.
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 are expected to continue growing
and although the gross profit margin might be lower for these products, net profit should increase.
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.
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.
In conjunction with strategic partners from across the ICT industry, Mustek is well positioned for the forthcoming
years.
Share repurchase programme
Mustek acquired 10 000 000 ordinary shares of its issued share capital on the open market for a purchase consideration
in aggregate of R54 854 417. 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 20 June 2018.
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 year to 30 June 2019. 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 delisted. 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. To this end, the board has declared a final dividend of 22 cents (2017: 16 cents)
per ordinary share for the financial year ended 30 June 2018.
Notice is hereby given that a final dividend of 22 cents per ordinary share for the year ended 30 June 2018 is
declared, payable to shareholders recorded in the books of the company at the close of business on the record date
appearing below. This dividend is declared out of income reserves. The company’s income tax reference number
is 9550081716 and the company has 73 000 000 ordinary shares in issue and ranking for dividend at the date of this
declaration. The South African dividend tax rate is 20% and no secondary tax on companies credits have been utilised,
resulting in a net dividend of 17.60 cents per share to shareholders who are not tax exempt.
The salient dates applicable to the final dividend are as follows:
Last day of trade cum dividend Tuesday, 25 September 2018
First day to trade ex dividend Wednesday, 26 September 2018
Record date Friday, 28 September 2018
Payment date Monday, 1 October 2018
No share certificates may be dematerialised or rematerialised between Wednesday, 26 September 2018 and
Friday, 28 September 2018, both days inclusive.
Where applicable, payment in respect of certificated shareholders will be transferred electronically to shareholders’
bank accounts on the payment date. In the absence of specific mandates, payment cheques will be posted to certificated
shareholders at their risk on the payment date. Shareholders who have dematerialised their shares will have their
accounts at their Central Securities Depository Participant or broker credited on the payment date.
Restatement of 2016 statement of cash flows
The 2016 statement of cash flows was restated in order to correctly classify an acquisition of additional shares
in a previously controlled entity as financing activities as opposed to investing activities. The error was detected
through the JSE’s proactive monitoring review process.
Group - 2016
As previously
reported Restated Impact
R000 R000 R000
Net cash used in investing activities (56 949) (37 107) 19 842
Net cash used in financing activities (32 503) (52 345) (19 842)
Legal dispute
One of Mustek’s biggest debtors went into business rescue in the latter part of 2017 and an amount of R20.0 million
is outstanding after receiving an insurance settlement from its credit insurer. The R20 million was secured with a
guarantee that is now disputed by the insurance company that issued the guarantee. Mustek obtained a legal opinion
from senior counsel and has not raised any provision against the R20 million because it is their view that the
amount is recoverable.
Post-balance sheet events
On 24 July 2018, the Group disposed of vacant land in Midrand for a cash consideration of R17.5 million and the
pre-tax capital profit on the disposal which is not included in this set of results amounted to R8.1 million.
The asset is disclosed as held for sale.
There have been no other significant events subsequent to year-end up until the date of this report that requires
adjustment or disclosure.
On behalf of the board of directors
David Kan Neels Coetzee, CA(SA)
Chief Executive Officer Financial Director (preparer of provisional Group results)
30 August 2018
Midrand
Summarised consolidated statement of comprehensive income
30 June 30 June
2018 2017
R000 R000
Revenue 5 671 293 5 243 147
Cost of sales (4 875 873) (4 581 639)
Gross profit 795 420 661 508
Foreign currency losses (87 935) (464)
Distribution, administrative and other operating expenses (544 405) (487 352)
Profit from operations 163 080 173 692
Investment revenues 10 658 20 937
Finance costs (87 255) (108 266)
Other losses (792) (468)
Share of profit of associates 15 749 7 956
Profit before tax 101 440 93 851
Income tax expense (20 183) (20 131)
Profit for the year 81 257 73 720
Other comprehensive income
Exchange profits on translation of foreign operations 2 110 (7 740)
Other comprehensive income for the year, net of tax 2 110 (7 740)
Total comprehensive income for the year 83 367 65 980
Profit attributable to:
Owners of the parent 79 807 73 091
Non-controlling interest 1 450 629
81 257 73 720
Total comprehensive income attributable to:
Owners of the parent 81 917 65 351
Non-controlling interest 1 450 629
83 367 65 980
Basic earnings per ordinary share (cents) 102.58 80.32
Summarised consolidated statement of financial position
30 June 30 June
2018 2017
R000 R000
ASSETS
Non-current assets
Property, plant and equipment 170 478 156 237
Goodwill 55 627 55 627
Intangible assets 44 634 37 889
Investments in associates 117 328 103 006
Other investments and loans 59 928 77 920
Deferred tax asset 21 923 16 572
469 918 447 251
Current assets
Inventories 965 971 1 078 035
Inventories in transit 187 282 128 375
Trade and other receivables 971 403 1 093 565
Foreign currency assets 31 077 2 602
Bank balances and cash 295 376 230 371
2 451 109 2 532 948
Assets classified as held for sale 9 420 -
TOTAL ASSETS 2 930 447 2 980 199
EQUITY AND LIABILITIES
Capital and reserves
Ordinary stated capital - -
Retained earnings 981 157 969 164
Non distributable reserve - -
Foreign currency translation reserve 3 279 1 169
Equity attributable to owners of the parent 984 436 970 333
Non-controlling interest 8 879 8 128
Total equity 993 315 978 461
Non-current liabilities
Long-term borrowings 6 251 5 637
Deferred tax liabilities 8 898 10 617
Deferred income 15 788 13 215
30 937 29 469
Current liabilities
Trade and other payables 1 625 054 1 715 277
Foreign currency liabilities 12 668 4 481
Deferred income 13 817 13 233
Bank overdrafts 254 656 239 278
1 906 195 1 972 269
Total liabilities 1 937 132 2 001 738
TOTAL EQUITY AND LIABILITIES 2 930 447 2 980 199
Summarised consolidated statement of changes in equity
Foreign Attributable
Ordinary Non- currency to owners Non-
stated Retained distributable translation of the controlling
capital earnings reserve reserve parent interest Total
R000 R000 R000 R000 R000 R000 R000
Balance at 30 June 2016 50 531 927 669 809 8 909 987 918 (581) 987 337
Profit for the year - 73 091 - - 73 091 629 73 720
Other comprehensive income - - - (7 740) (7 740) - (7 740)
Dividends paid - (13 950) - - (13 950) - (13 950)
Buy back of shares (50 531) (18 455) - - (68 986) - (68 986)
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
Profit for the year - 79 807 - - 79 807 1 450 81 257
Other comprehensive income - - - 2 110 2 110 - 2 110
Dividends paid - (12 960) - - (12 960) (699) (13 659)
Buy back of shares - (54 854) - - (54 854) - (54 854)
Balance at 30 June 2018 - 981 157 - 3 279 984 436 8 879 993 315
Summarised consolidated cash flow statement
Restated
30 June 30 June 30 June
2018 2017 2016
R000 R000 R000
OPERATING ACTIVITIES
Cash receipts from customers 5 778 409 5 251 783 5 563 726
Cash paid to suppliers and employees (5 538 720) (5 023 008) (5 388 679)
Net cash from operations 239 689 228 775 175 047
Investment revenues received 10 658 20 937 19 281
Finance costs paid (87 255) (108 266) (110 793)
Dividends paid (13 659) (13 950) (35 605)
Income taxes paid (10 862) (27 637) (34 697)
Net cash from operating activities 138 571 99 859 13 233
INVESTING ACTIVITIES
Additions to property, plant and equipment (44 052) (23 750) (24 858)
Proceeds from sale of property, plant and equipment 526 153 271
Proceeds on disposal of subsidiary, net of cash disposed - - (1 263)
Acquisition of subsidiaries, net of cash acquired - (6 256) -
Decrease (increase) in investments in and loans to associates 1 427 (10 202) (8 018)
Decrease (increase) in investments and loans 13 713 (2 518) 9 844
Additions to intangible asset (16 621) (9 781) (13 083)
Net cash used in investing activities (45 007) (52 354) (37 107)
FINANCING ACTIVITIES
Buy back of ordinary shares (54 854) (68 986) (42 823)
Increase in long-term borrowings 3 187 5 721 9 164
Increase (decrease) in short-term borrowings 7 730 953 (14 808)
Increase (decrease) in bank overdrafts 15 378 (138 435) 15 964
Acquisition of additional shares in a previously controlled entity - - (19 842)
Net cash used in financing activities (28 559) (200 747) (52 345)
Net increase (decrease) in cash and cash equivalents 65 005 (153 242) (76 219)
Cash and cash equivalents at beginning of the year 230 371 383 613 459 832
Cash and cash equivalents at end of the year 295 376 230 371 383 613
Summarised segmental analysis
Total Mustek Rectron Group Eliminations
30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June
2018 2017 2018 2017 2018 2017 2018 2017 2018 2017
Business segments R000 R000 R000 R000 R000 R000 R000 R000 R000 R000
Revenue 5 671 293 5 243 147 3 826 754 3 135 498 2 164 331 2 429 919 - - (319 792) (322 270)
EBITDA * 193 564 202 465 166 883 132 170 50 417 86 265 (23 736) (15 970) - -
Depreciation and amortisation (30 483) (28 773) (20 055) (18 759) (10 428) (10 014) - - - -
Profit (loss) from operations 163 081 173 692 146 828 113 411 39 989 76 251 (23 736) (15 970) - -
Investment revenues 10 658 20 937 5 378 7 818 7 107 13 780 2 173 4 988 (4 000) (5 649)
Finance costs (87 255) (108 266) (60 523) (57 759) (26 673) (50 507) (4 059) (5 649) 4 000 5 649
Other losses (792) (468) - - - - (792) (468) - -
Share of profit of associates 15 749 7 956 - - - - 15 749 7 956 - -
Profit before tax 101 441 93 851 91 683 63 470 20 423 39 524 (10 665) (9 143) - -
Income tax (expense) benefit (20 183) (20 131) (22 174) (13 933) (4 047) (9 273) 6 038 3 075 - -
Profit (loss) for the year 81 258 73 720 69 509 49 537 16 376 30 251 (4 627) (6 068) - -
Attributable to:
Owners of the parent 79 808 73 091 69 509 49 537 14 874 29 574 (4 575) (6 020) - -
Non-controlling interest 1 450 629 - - 1 502 677 (52) (48) - -
81 258 73 720 69 509 49 537 16 376 30 251 (4 627) (6 068) - -
* Earnings before interest, taxation, depreciation and amortisation
Total South Africa East Africa Taiwan
30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June
2018 2017 2018 2017 2018 2017 2018 2017
Geographical segments R000 R000 R000 R000 R000 R000 R000 R000
Revenue 5 671 293 5 243 147 5 631 805 5 204 256 38 301 37 762 1 187 1 129
Profit (loss) before tax 101 441 93 851 98 015 94 205 2 171 (1 600) 1 255 1 246
Income tax (expense) benefi (20 183) (20 131) (19 553) (20 863) (301) 1 295 (329) (563)
Profit (loss) for the year 81 258 73 720 78 462 73 342 1 870 (305) 926 683
Attributable to:
Owners of the parent 79 808 73 091 77 012 73 390 1 870 (305) 926 683
Non-controlling interest 1 450 629 1 450 (48) - - - -
81 258 73 720 78 462 73 342 1 870 (305) 926 683
Corporate information:
Directors: Rev Dr VC Mehana (Non-executive Chairman), DC Kan (Chief executive officer), CJ Coetzee (Financial director),
H Engelbrecht, LL Dhlamini*, Dr ME Gama*, RB Patmore* *Independent Non-executive director
Company secretary: Sirkien van Schalkwyk, 1 Carlsberg, 430 Nieuwenhuyzen Street, Erasmuskloof Extension 2, 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, 2196. PO Box 61051, Marshalltown, 2107. 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: 30/08/2018 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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