Wrap Text
Unaudited condensed consolidated financial results
for the six months ended 31 December 2018
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 2018
Highlights
Headline earnings per share up 19.6%
2018: 69.49 cents
2017: 58.08 cents
Net asset value per share up 12.9%
2018: 1 433.94 cents
2017: 1 270.47 cents
Basic earnings per share up 36.9%
2018: 78.24 cents
2017: 57.13 cents
Condensed consolidated statement of comprehensive income
Unaudited Unaudited Audited
6 months 6 months Year-end
R 000 31 Dec 2018 31 Dec 2017 30 Jun 2018
Revenue 2 702 265 2 645 718 5 671 293
Cost of sales (2 291 738) (2 297 374) (4 875 873)
Gross profit 410 527 348 344 795 420
Foreign currency losses (11 252) (3 883) (87 935)
Distribution, administrative and other operating expenses (282 848) (257 569) (544 405)
Profit from operations 116 427 86 892 163 080
Investment revenues 3 248 6 186 10 658
Finance costs (49 999) (42 666) (87 255)
Other losses - (792) (792)
Share of profit of associates 6 475 9 689 15 749
Profit before tax 76 151 59 309 101 440
Income tax expense (19 147) (12 848) (20 183)
Profit for the period 57 004 46 461 81 257
Other comprehensive income
Exchange profits (losses) on translation of foreign operations 610 (2 881) 2 110
Other comprehensive income for the period, net of tax 610 (2 881) 2 110
Total comprehensive income for the period 57 614 43 580 83 367
Profit attributable to:
Owners of the parent 55 890 45 966 79 807
Non-controlling interest 1 114 495 1 450
57 004 46 461 81 257
Total comprehensive income attributable to:
Owners of the parent 56 500 43 085 81 917
Non-controlling interest 1 114 495 1 450
57 614 43 580 83 367
Basic earnings per ordinary share (cents) 78.24 57.13 102.58
Condensed consolidated statement of financial position
Unaudited Unaudited Audited
6 months 6 months Year-end
R 000 31 Dec 2018 31 Dec 2017 30 Jun 2018
ASSETS
Non-current assets
Property, plant and equipment 185 713 161 648 170 478
Goodwill 55 627 55 627 55 627
Intangible assets 45 237 43 204 44 634
Investments in associates 116 957 118 395 117 328
Other investments and loans 58 212 57 795 59 928
Deferred tax asset 19 843 17 497 21 923
481 589 454 166 469 918
Current assets
Inventories 1 268 002 882 431 965 971
Inventories in transit 180 994 207 032 187 282
Trade and other receivables 1 016 728 1 193 916 971 403
Foreign currency assets 14 010 - 31 077
Bank balances and cash 318 125 310 506 295 376
2 797 859 2 593 885 2 451 109
Non-current asset classified as held for sale - - 9 420
TOTAL ASSETS 3 279 448 3 048 051 2 930 447
EQUITY AND LIABILITIES
Capital and reserves
Ordinary stated capital - - -
Retained earnings 999 866 967 271 981 157
Foreign currency translation reserve 3 889 (1 712) 3 279
Equity attributable to owners of the parent 1 003 755 965 559 984 436
Non-controlling interest 8 122 8 623 8 879
Total equity 1 011 877 974 182 993 315
Non-current liabilities
Long-term borrowings 7 005 4 729 6 251
Deferred tax liabilities 8 616 10 336 8 898
Deferred income 15 466 13 779 15 788
31 087 28 844 30 937
Current liabilities
Trade and other payables 1 645 655 1 499 328 1 625 054
Foreign currency liabilities - 66 252 12 668
Deferred income 13 999 12 219 13 817
Bank overdrafts 576 830 467 226 254 656
2 236 484 2 045 025 1 906 195
Total liabilities 2 267 571 2 073 869 1 937 132
TOTAL EQUITY AND LIABILITIES 3 279 448 3 048 051 2 930 447
Condensed consolidated cash flow statement
Unaudited Unaudited Audited
6 months 6 months Year-end
R 000 31 Dec 2018 31 Dec 2017 30 Jun 2018
Operating activities
Cash receipts from customers 2 652 725 2 532 624 5 778 409
Cash paid to suppliers and employees (2 846 724) (2 581 207) (5 538 720)
Net cash (used in) from operations (193 999) (48 583) 239 689
Investment revenues received 3 248 6 186 10 658
Finance costs paid (49 999) (42 666) (87 255)
Dividends paid (17 785) (12 960) (13 659)
Income taxes paid (11 029) 2 487 (10 862)
Net cash (used in) from operating activities (269 564) (95 536) 138 571
Investing activities
Additions to property, plant and equipment (25 168) (16 198) (44 052)
Proceeds from sale of property, plant and equipment 17 500 171 526
Decrease (increase) in investments in and loans to associates 6 846 (5 700) 1 427
Decrease in investments and loans 1 716 15 846 13 713
Additions to intangible assets (4 693) (10 377) (16 621)
Net cash used in investing activities (3 799) (16 258) (45 007)
FINANCING ACTIVITIES
Buy back of ordinary shares (21 267) (34 899) (54 854)
Increase in long-term borrowings 432 (344) 3 187
Increase (decrease) in short-term borrowings (5 227) (776) 7 730
Increase (decrease) in bank overdrafts 322 174 227 948 15 378
Net cash from (used in) financing activities 296 112 191 929 (28 559)
Net increase in cash and cash equivalents 22 749 80 135 65 005
Cash and cash equivalents at beginning of the year 295 376 230 371 230 371
Cash and cash equivalents at end of the year 318 125 310 506 295 376
Condensed consolidated statement of changes in equity
Foreign Attributable
Ordinary currency to owners Non-
stated Retained translation of the controlling
R 000 capital earnings reserve parent interest Total
Balance at 30 June 2017 - 969 164 1 169 970 333 8 128 978 461
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
Profit for the period - 33 841 - 33 841 955 34 796
Other comprehensive income - - 4 991 4 991 - 4 991
Dividends paid - - - - (699) (699)
Buy back of shares - (19 955) - (19 955) - (19 955)
Balance at 30 June 2018 - 981 157 3 279 984 436 8 879 993 315
Profit for the period - 55 890 - 55 890 1 114 57 004
Other comprehensive income - - 610 610 - 610
Dividends paid - (15 914) - (15 914) (1 871) (17 785)
Buy back of shares - (21 267) - (21 267) - (21 267)
Balance at 31 December 2018 - 999 866 3 889 1 003 755 8 122 1 011 877
Condensed segmental analysis
Total Mustek Rectron
Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited
6 months 6 months 6 months 6 months 6 months 6 months
R 000 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec
Business segments 2018 2017 2018 2017 2018 2017
Revenue 2 702 265 2 645 718 1 751 646 1 730 974 1 111 392 1 088 758
EBITDA* 130 917 101 237 107 509 81 624 34 776 31 339
Depreciation and amortisation (14 490) (15 137) (9 411) (9 834) (5 079) (5 303)
Profit (loss) from operations 116 427 86 100 98 098 71 790 29 697 26 036
Investment revenues 3 248 6 186 2 876 1 993 1 434 5 244
Finance costs (49 999) (42 666) (34 868) (26 494) (15 131) (16 172)
Share of profit of associates 6 475 9 689 - - - -
Profit (loss) before tax 76 151 59 309 66 106 47 289 16 000 15 108
Income tax (expense) benefit (19 147) (12 848) (18 294) (12 244) (4 333) (4 182)
Profit (loss) for the period 57 004 46 461 47 812 35 045 11 667 10 926
Attributable to:
Owners of the parent 55 890 45 966 47 784 35 070 10 581 10 406
Non-controlling interest 1 114 495 28 (25) 1 086 520
57 004 46 461 47 812 35 045 11 667 10 926
* Earnings before interest, taxation, depreciation and amortisation
Condensed segmental analysis (continued)
Group Eliminations
Unaudited Unaudited Unaudited Unaudited
6 months 6 months 6 months 6 months
R 000 31 Dec 31 Dec 31 Dec 31 Dec
Business segments 2018 2017 2018 2017
Revenue - - (160 773) (174 014)
EBITDA* (11 368) (11 726) - -
Depreciation and amortisation - - - -
Profit (loss) from operations (11 368) (11 726) - -
Investment revenues 463 1 155 (1 525) (2 206)
Finance costs (1 525) (2 206) 1 525 2 206
Share of profit of associates 6 475 9 689 - -
Profit (loss) before tax (5 955) (3 088) - -
Income tax (expense) benefit 3 480 3 578 - -
Profit (loss) for the period (2 475) 490 - -
Attributable to:
Owners of the parent (2 475) 490 - -
Non-controlling interest - - - -
(2 475) 490 - -
* Earnings before interest, taxation, depreciation and amortisation
Total South Africa Mustek East Africa Mecer Technology (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
R 000 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec
Geographical segments 2018 2017 2018 2017 2018 2017 2018 2017
Revenue 2 702 265 2 645 718 2 682 789 2 623 885 19 152 21 086 324 747
Profit before tax 76 151 59 309 73 127 57 861 113 1 045 2 911 403
Income tax
(expense) benefit (19 147) (12 848) (18 299) (12 778) (353) 71 (495) (141)
Profit (loss)
for the period 57 004 46 461 54 828 45 083 (240) 1 116 2 416 262
Attributable to:
Owners of the parent 55 890 45 966 53 714 44 588 (240) 1 116 2 416 262
Non-controlling
interest 1 114 495 1 114 495 - - - -
57 004 46 461 54 828 45 083 (240) 1 116 2 416 262
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 consolidated financial information for the period ended 31 December 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. This set of condensed financial information, which is 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 2018, except for the adoption of
IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers.
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 and dividend per ordinary share
Unaudited Unaudited Audited
6 months 6 months year-end
31 Dec 31 Dec 30 Jun
2018 2017 2018
Weighted number of ordinary shares in issue 71 432 953 80 454 825 77 802 385
Ordinary shares in issue 70 000 000 76 000 000 73 000 000
Dividend per ordinary share - paid (cents) 22.00 16.00 16.00
Headline earnings per share (cents) 69.49 58.08 104.15
Reconciliation between basic and headline earnings (R000)
Basic earnings attributable to owners of the parent 55 890 45 966 79 807
Group's share of (profit) loss on disposal of property,
plant and equipment (6 253) (32) 434
Loss on sale of investment - 792 792
Headline earnings 49 637 46 726 81 033
Net asset value per share (cents) 1 433.94 1 270.47 1 348.54
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).
Unaudited Unaudited Audited
6 months 6 months year-end
R000 31 Dec 31 Dec 30 Jun
Financial assets and liabilities Level 2018 2017 2018
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 14 010 - 31 077
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 12 668
Operating results
The Group's revenue increased by 2.1% to R2.70 billion (31 December 2017: R2.65 billion) mainly as a result of growth
in new products and services added to the Group's portfolio.
The gross profit percentage increased to 15.2% (31 December 2017: 13.2%) reflecting the recovery of forex losses
incurred in the prior year due to the Rand's depreciation.
The ZAR/USD exchange rate was extremely volatile during the period under review and the Group's hedging policy proved
effective as forex losses was limited to R11.3 million (31 December 2017: R3.9 million).
Distribution, administrative and other operating expenses increased by 9.8%. The cost of credit insurance increased
sharply until the end of September 2018 where after it reduced to be in line with the budgeted expense. An increase
of R4.0 million in the provision for bad debts also contributed to the increase.
Net finance charges increased from R36.5 million to R46.8 million predominantly as a result of the increase in
inventory levels. Working capital management continues to be a driver of profitability and is currently receiving
management's full attention.
Despite an improved performance from Sizwe Africa IT Group Proprietary Limited, the contribution from associates
decreased but should recover by year end.
In line with Mustek's policy to dispose of underperforming assets with low growth potential, vacant land in Midrand
was disposed of for R17.5 million, realising an after tax, non-headline profit of R6,3 million. As a result,
Mustek's headline earnings per share is 19.6% higher at 69.49 cents (31 December 2017: 58.08 cents) and basic
earnings per share is 36.9% higher at 78.24 cents (31 December 2017: 57.13 cents).
Cash flow
The R194.0 million cash used in (31 December 2017: R48.6 million) operations was mainly due to an increase in
inventory. This was funded by bank overdraft facilities and is expected to reverse in the period through to
June 2019, in line with historic trends.
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 24 July 2018, the Group disposed of land in Midrand for a cash consideration of R17.5 million, realising an
after tax profit of R6.3 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
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.
In conjunction with strategic partners from across the ICT industry, Mustek is well positioned for the
forthcoming years.
Share repurchase programme
Mustek acquired 3 000 000 ordinary shares of its issued share capital on the open market for a purchase
consideration in aggregate of R21 267 415. The general repurchase commenced on 30 August 2018 and continued
on a day-to-day basis as market conditions allowed and in accordance with the JSE Limited (JSE) Listings
Requirements until 18 October 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 period 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
29 November 2018. 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.
In line with the dividend policy, no interim dividend will be paid.
Legal dispute
As reported on 30 August 2018, Mustek is in a dispute with an insurance company regarding the validity of a
guarantee to the value of R20 million issued by the insurance company. The matter will be heard in the High
Court during May 2019. 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
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 CA(SA) Financial Director (preparer of interim Group results)
22 February 2019
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
www.mustek.co.za
Date: 22/02/2019 08:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
