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MST
MST
MST - Mustek - Audited financial results for the year ended 30 June 2008
Mustek
(Incorporated in the Republic of South Africa)
(Registration number 1987/070161/06)
Share code: MST & ISIN: ZAE000012373 ("Mustek" or "the Group")
AUDITED FINANCIAL RESULTS FOR THE YEAR ENDED 30 JUNE 2008
Headline earnings per share up 36%
Condensed consolidated income statement
Restated
2008 2007
R`000 R`000
Continuing operations
Revenue 3 408 704 3 261 676
Cost of sales (2 842 966) (2 725 462)
Gross profit 565 738 536 214
Other income 16 187 9 415
Distribution, administrative and (420 516) (389 848)
other operating expenses
Share of profit from associates 6 120 3 097
Profit from operations 167 529 158 878
Investment revenues 24 930 23 659
Finance costs (59 103) (64 716)
Other losses - (4 346)
Profit before tax 133 356 113 475
Income tax expense (45 293) (28 289)
Profit for the year from continuing 88 063 85 186
operations
Discontinued operations
Loss for the year from discontinued (457) (13 920)
operations
Profit for the year 87 606 71 266
Attributable to:
Equity holders of the parent 81 385 58 206
Minority interest 6 221 13 060
87 606 71 266
Earnings and dividend per share
(cents)
Weighted number of ordinary shares 110 303 273 109 008 923
in issue
Ordinary shares in issue 110 449 804 109 615 732
From continuing and discontinued
operations
Basic earnings per ordinary share 73,78 53,40
Diluted basic earnings per ordinary 73,67 52,79
share
Dividend per ordinary share - paid 50,00 55,00
Dividend per ordinary share - 10,00 30,00
proposed
From continuing operations
Basic earnings per ordinary share 74,19 66,17
Diluted basic earnings per ordinary 74,09 65,42
share
Headline earnings per share (cents)
From continuing and discontinued
operations
Headline earnings per ordinary share 73,73 54,07
Diluted headline earnings per 73,62 53,46
ordinary share
From continuing operations
Headline earnings per ordinary share 76,34 66,84
Diluted headline earnings per 76,23 66,09
ordinary share
Reconciliation between basic and
headline earnings
Basic earnings attributable to 81 385 58 206
equity holders of the parent
Realisation of foreign currency (2 869) -
translation reserve
Loss on disposal of subsidiary 451 -
Group`s share of loss on disposal of 2 363 390
property, plant and equipment
Dilution of investment in joint - 346
venture
Headline earnings 81 330 58 942
Net asset value per share (cents) 497,44 476,14
Condensed consolidated balance sheet
Restated
2008 2007
R`000 R`000
ASSETS
Non-current assets
Property, plant and equipment 177 514 116 609
Intangible assets 50 590 40 080
Investments in associates 6 940 26 982
Investment in joint venture 1 000 1 129
Other investments and loans 46 656 32 537
Deferred tax asset 25 159 32 543
Non-current trade and other receivables 25 667 10 345
333 526 260 225
Current assets
Inventories 772 690 746 273
Trade and other receivables 503 416 473 114
Foreign currency assets 3 065 -
Tax assets 1 505 3 316
Bank balances and cash 420 103 368 793
1 700 779 1 591 496
TOTAL ASSETS 2 034 305 1 851 721
EQUITY AND LIABILITIES
Capital and reserves
Ordinary share capital 884 877
Ordinary share premium 121 031 111 198
Retained earnings 403 608 377 748
Properties revaluation reserve 7 794 5 205
Investment revaluation reserve 8 465 21 925
Foreign currency translation reserve 7 634 4 968
Equity attributable to equity holders 549 416 521 921
of the parent
Minority interest 19 408 10 187
Total equity 568 824 532 108
Non-current liabilities
Long-term borrowings 318 542 308 083
Deferred tax liabilities 921 777
319 463 308 860
Current liabilities
Short-term borrowings 63 900 47 745
Trade and other payables 918 549 880 638
Provisions 12 953 10 527
Foreign currency liabilities 361 4 889
Deferred income 28 001 29 244
Tax liabilities 23 719 1 436
Bank overdrafts 98 535 36 274
1 146 018 1 010 753
Total liabilities 1 465 481 1 319 613
TOTAL EQUITY AND LIABILITIES 2 034 305 1 851 721
Condensed consolidated cash flow statement
2008 2007
R`000 R`000
Operating activities
Cash receipts from customers 3 368 220 3 285 980
Cash paid to suppliers and employees (3 194 483) (3 293 449)
Net cash from (used in) operations 173 737 (7 469)
Investment revenues received 18 648 14 749
Finance costs paid (59 103) (64 716)
Dividends received 6 282 8 910
Dividends paid (55 525) (60 421)
Income taxes paid (10 265) (29 166)
Net cash from (used in) operating 73 774 (138 113)
activities
Net cash used in investing activities (103 484) (33 880)
Net cash from financing activities 81 020 63 865
Net increase (decrease) in cash and 51 310 (108 128)
cash equivalents
Cash and cash equivalents at 368 793 476 921
beginning of the year
Cash and cash equivalents at end of 420 103 368 793
the year
Condensed segment analysis
Business segments Total Mustek Rectron
R`000 R`000 R`000
Continuing operations
Revenue 3 408 704 1 661 178 1 402 993
EBITDA* 183 709 100 387 72 824
Depreciation (22 300) (12 052) (9 362)
Share of profit from 6 120 - -
associate
Profit (loss) from 167 529 88 335 63 462
operations
Investment revenues 24 930 14 360 8 445
Finance costs (59 103) (25 559) (22 964)
Profit (loss) before 133 356 77 136 48 943
tax
Income tax expense (45 293) (28 387) (14 035)
Profit (loss) for the 88 063 48 749 34 908
year from continuing
operations
Discontinued operations
Loss for the year from (457) (457) -
discontinued operations
Profit (loss) for the 87 606 48 292 34 908
period
Attributable to:
Equity holders of the 81 385 48 443 30 617
parent
Minority interest 6 221 (151) 4 291
87 606 48 292 34 908
*Earnings before interest, taxation, depreciation and
amortisation.
Geographical segments Mecer
Total South Africa South America
R`000 R`000 R`000
Continuing operations
Revenue 3 408 704 3 197 815 -
Profit before tax 133 356 117 994 -
Income tax expense (45 293) (41 163) -
Profit from continuing 88 063 76 831 -
operations
Discontinued operations
Loss from discontinued (457) - (457)
operations
Profit (loss) for the 87 606 76 831 (457)
period
Attributable to:
Equity holders of the 81 385 74 688 (457)
parent
Minority interest 6 221 2 143 -
87 606 76 831 (457)
Condensed segment analysis (continued)
Business segments Comztek Investments Eliminations
R`000 R`000 R`000
Continuing operations
Revenue 425 064 - (80 531)
EBITDA* 19 311 (8 813) -
Depreciation (886) - -
Share of profit from - 6 120 -
associate
Profit (loss) from 18 425 (2 693) -
operations
Investment revenues 3 480 - (1 355)
Finance costs (9 240) (2 695) 1 355
Profit (loss) before tax 12 665 (5 388) -
Income tax expense (2 871) - -
Profit (loss) for the 9 794 (5 388) -
year from continuing
operations
Discontinued operations
Loss for the year from - - -
discontinued operations
Profit (loss) for the 9 794 (5 388) -
period
Attributable to:
Equity holders of the 7 713 (5 388) -
parent
Minority interest 2 081 - -
9 794 (5 388) -
*Earnings before interest, taxation, depreciation and amortisation.
Geographical segments Mecer Rectron Comztek
East Africa Australia Africa Nigeria
R`000 R`000 R`000 R`000
Continuing operations
Revenue 17 129 143 313 50 447 -
Profit before tax 2 136 6 203 903 6 120
Income tax expense (748) (3 382) - -
Profit from 1 388 2 821 903 6 120
continuing operations
Discontinued
operations
Loss from - - - -
discontinued
operations
Profit (loss) for the 1 388 2 821 903 6 120
period
Attributable to:
Equity holders of the 1 388 (932) 578 6 120
parent
Minority interest - 3 753 325 -
1 388 2 821 903 6 120
Condensed consolidated statement of changes in equity
Ordinary Ordinary Preference Preference
share share share share
capital premium capital premium
R`000 R`000 R`000 R`000
Balance at 30 June 860 95 017 265 4 000
2006 as previously
stated
Restatement - - - -
Restated balance at 860 95 017 265 4 000
30 June 2006
Restated profit for - - - -
the year
Shares issued in 17 8 272 - -
terms of option
scheme
Recognition of - 7 909 - -
share-based
payments
Dividends paid - - - -
Dividend paid by - - - -
subsidiary
Preference share - - (265) (4 000)
redeemed
Asset revaluation - - - -
Net foreign - - - -
currency
translation reserve
- foreign entities
Investments in - - - -
subsidiaries
Balance at 30 June 877 111 198 - -
2007
Restated profit for - - - -
the year
Shares issued in 7 4 164 - -
terms of option
scheme
Recognition of - 5 669 - -
share-based
payments
Dividends paid - - - -
Asset revaluation - - - -
Realisation of - - - -
foreign currency
translation reserve
Net foreign - - - -
currency
translation reserve
- foreign entities
Investment in - - - -
subsidiary
Balance at 30 June 2008 884 121 031 - -
Condensed consolidated statement of changes in equity (continued)
Investments Properties
Retained revaluation revaluation Translation
earnings reserve reserve reserve
R`000 R`000 R`000 R`000
Balance at 30 398 848 - 2 014 4 819
June 2006 as
previously
stated
Restatement (18 885) 20 524 - (1 639)
Restated 379 963 20 524 2 014 3 180
balance at 30
June 2006
Restated 58 206 - - -
profit for the
year
Shares issued - - - -
in terms of
option scheme
Recognition of - - - -
share-based
payments
Dividends paid (60 421) - - -
Dividend paid - - - -
by subsidiary
Preference - - - -
share redeemed
Asset - 1 401 1 956 -
revaluation
Net foreign - - - 1 136
currency
translation
reserve -
foreign
entities
Investments in - - 1 235 652
subsidiaries
Balance at 30 377 748 21 925 5 205 4 968
June 2007
Restated 81 385 - - -
profit for the
year
Shares issued - - - -
in terms of
option scheme
Recognition of - - - -
share-based
payments
Dividends paid (55 525) - - -
Asset - (13 460) 2 589 -
revaluation
Realisation of - - - (2 869)
foreign
currency
translation
reserve
Net foreign - - - 5 535
currency
translation
reserve -
foreign
entities
Investment in - - - -
subsidiary
Balance at 30 403 608 8 465 7 794 7 634
June 2008
Condensed consolidated statement of changes in equity (continued)
Attributable to
equity holders Minority
of the parent interest Total
R`000 R`000 R`000
Balance at 30 June 2006 as 505 823 69 594 575 417
previously stated
Restatement - - -
Restated balance at 30 505 823 69 594 575 417
June 2006
Restated profit for the 58 206 13 060 71 266
year
Shares issued in terms of 8 289 - 8 289
option scheme
Recognition of share-based 7 909 - 7 909
payments
Dividends paid (60 421) - (60 421)
Dividend paid by - (10 249) (10 249)
subsidiary
Preference share redeemed (4 265) - (4 265)
Asset revaluation 3 357 960 4 317
Net foreign currency 1 136 492 1 628
translation reserve -
foreign entities
Investments in 1 887 (63 670) (61 783)
subsidiaries
Balance at 30 June 2007 521 921 10 187 532 108
Restated profit for the 81 385 6 221 87 606
year
Shares issued in terms of 4 171 - 4 171
option scheme
Recognition of share-based 5 669 - 5 669
payments
Dividends paid (55 525) - (55 525)
Asset revaluation (10 871) - (10 871)
Realisation of foreign (2 869) - (2 869)
currency translation
reserve
Net foreign currency 5 535 - 5 535
translation reserve -
foreign entities
Investment in subsidiary - 3 000 3 000
Balance at 30 June 2008 549 416 19 408 568 824
COMMENTARY
1. Statement of compliance
These condensed financial statements for the year ended 30 June 2008 are a
summary of the Group`s unqualified audited financial statements and are prepared
in accordance with International Financial Reporting Standards (IFRS) applicable
to interim financial reporting (IAS 34), the Listing Requirements of the JSE
Limited and the Companies Act of South Africa.
2. Accounting policies
The audited results for the year ended 30 June 2008 have been prepared in
accordance with the Group`s accounting policies which comply with IFRS. The
accounting policies adopted are consistent with those applied in the preparation
of the audited annual financial statements for the year ended 30 June 2007, with
the exception of the adoption of IFRS 7, Financial Instruments: Disclosures.
3. Audit report
The consolidated financial statements for the year have been audited by Deloitte
& Touche and their accompanying unqualified audit report as well as their
unqualified audit report for this set of summarised financial information, is
available for inspection at the company`s registered address.
4. Corporate governance
The Group subscribes to and complies in all material aspects with the Code on
Corporate Governance Practices and Conduct as contained in the second King
Report on Corporate Governance.
5. Transformation
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
operatives and commercial benefits of such a process can be achieved, thereby
ensuring the sustainability of the Group in a competitive market sector.
6. Board of directors
There has been no change to the board of directors in the period under review.
Total remuneration paid to directors for the year under review amounted to R3,3
million (2007: R2,7 million) and share-based payments of R2,4 million (2007:
R4,3 million) were expensed relating to directors.
7. Cash flow
Bank balances and cash remained strong at R420,1 million (2007: R368,8 million)
due to focused working capital management. Net cash from operations improved
from R7,5 million used in the 2007 financial year to R173,7 million generated in
the 2008 financial year.
8. Corporate activities
The Group acquired 100% of Comztek Africa Zambia Limited on 1 July 2007, 50% of
Digital Surveillance Systems (Pty) Limited on 7 September 2008, 100% of Tier One
Electronics (Pty) Limited on 1 March 2008 and disposed of Mecer Digital Do
Brazil LTDA on 14 November 2007. The comparative income statement has been re-
presented accordingly to disclose separately the subsidiary`s results as
discontinued operations. The Group also classified its investment in Wavetrend
Technologies Limited as available for sale in terms of IAS 39, Financial
Instruments: Recognition and Measurement and the comparative numbers have been
restated accordingly.
9. Operating results
Mustek`s major clients include corporate, government, parastatals, retail and an
extensive dealer network.
Headline earnings per share have been negatively affected by losses incurred in
Mecer Digital Do Brazil LTDA prior to disposal (2,2 cents), share-based payments
expensed (5,1 cents) and a STC charge on dividends paid (5,0 cents). In total,
headline earnings per share have been negatively affected by 12,3 cents per
share as a result of these charges and expenses. The share-based payments
expense should reduce by 46% in the next financial year and the losses in Mecer
Brazil will not be repeated as the subsidiary was disposed.
The Group`s gross margin from continuing operations increased to 16,6% from
16,4% in the previous financial year.
Distribution, administrative and other operating expenses increased by 7,9% and
were well controlled when taking into account the acquisitions of Comztek Africa
Zambia Limited, Digital Surveillance Systems (Pty) Limited and Tier One
Electronics (Pty) Limited which all contributed towards distribution,
administrative and other operating expenses.
10. Retirement benefit plan
The Mustek Group Retirement Fund is a defined contribution fund and payments to
the plan are charged as an expense as they fall due. The majority of the Group`s
employees belong to this fund. The Group does not provide additional post-
retirement benefits.
11. Industry outlook
Until now, the adoption of broadband connectivity in South Africa has been
sluggish due to the high price of telecommunications. The computer hardware to
required to get connected - essentially a PC and modem - is relatively cheap
compared to the month-after-month costs of the present offerings that South
African consumers must use. However, the trenches that presently criss-cross
South Africa`s major metropolitan areas offer daily evidence that our
telecommunications providers are laying the groundwork for a major expansion of
national broadband capacity. Other wireless-based technologies such as WiMAX are
also being rolled out. In June 2009, SEACOM`s undersea fibre optic cable that
connects several African countries to Europe is scheduled to come ashore at
Mtunzini in KwaZulu-Natal. With this, the first of several planned private
sector cables, broadband prices should fall sharply as the major providers
compete for market share. Although it is premature to predict the resulting
pricing models, we are confident that falling telecommunications prices will
enable many new broadband consumers to enter the market. Existing users will
also be tempted to upgrade their hardware to take advantage of the high-speed
broadband services, ie streaming video, that will become more affordable.
Notebooks such as the Eee PC at drastically reduced prices offer internet
communications, office packages and video streaming and are sufficient for
students, PC users on the move and the millions of would-be users that cannot
afford regular computers. In the business environment, however, these energy-
efficient and cheap machines are well positioned to take advantage of the trend
toward "cloud computing," in which data is managed and stored in distant servers
rather than the actual machines. Microsoft and Intel announced the release of
the "Netbook" (laptop) and "Nettop" (desktop) that stipulate maximum screen
sizes, processing power and functionality. Intel consequently released its
revolutionary power-efficient and low-cost Atom microprocessor, which is
designed specifically for these simple and affordable machines. Purchasers of
hardware that comply with the Netbook and Nettop standards automatically qualify
to purchase Microsoft`s Windows XP operating system at sharply reduced prices.
This new category of machines is primarily aimed at:
- would-be computer users (primarily in developing or third world countries) who
cannot afford regular, full-featured computers
- computer users (primarily in developed or first world countries) who will buy
second and affordable "carry around" machines that needn`t have all the
functions and applications of their primary computers.
Market research firm International Data Corporation predicted that by 2012
this category could grow to nine million users in developed economies alone.
Intel itself projects that by 2011 the market for Netbooks will be 40 million
units a year.
12. BEE transaction and withdrawal of cautionary announcement
Shareholders are referred to the cautionary announcement released on SENS on 28
February 2008 and in the press on 29 February 2008, which have been renewed on
10 April 2008, 15 May 2008, 27 June 2008 and again on 8 August 2008 and are
hereby advised that negotiations with a potential Black Economic Empowerment
partner have been terminated. Shareholders are therefore advised that they are
no longer required to exercise caution when dealing in the company`s securities.
However, the Group is committed to a process of further transformation and will
advise shareholders on progress made in this regard.
13. Company outlook
The company is undertaking a review of the overall structure and operations with
a view to improving efficiency and profitability. The emphasis on increasing
volumes remains a driver of performance across our operations. Key risks
affecting future profitability include the continued electricity supply, the
ongoing skills shortage and significant fluctuations in the rand/dollar exchange
rate. Mustek has been and will remain an acquisitive company should
opportunities exist or arise. Mustek`s outlook remains focused on sustainable
growth. Opportunities for further optimisation, improved production and cost
management will be explored. Enhanced cash flow will be used prudently to reduce
our debt and finance new capacity and other growth initiatives,
14. 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
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.
To this end, the final dividend declared by the Board of Directors for the
financial year ended 30 June 2008 has been reduced to 10 cents.
The company`s target dividend payout ratio is to be 20% - 40% of its basic
earnings in future years.
Additionally, only one dividend will be paid annually, after the determination
of the company`s earnings.
Notice is hereby given that a final dividend of 10 cents per ordinary share for
the year ended 30 June 2008 is declared, payable to shareholders recorded in the
books of the company at the close of business on the record date appearing
below. The salient dates applicable to the final dividend are as follows:
Last day of trade cum dividend Friday, 26 September 2008
First day to trade ex dividend Monday, 29 September 2008
Record date Friday, 3 October 2008
Payment date Monday, 6 October 2008
No share certificates may be dematerialised or rematerialised between Monday, 29
September 2008 and Friday, 3 October 2008, 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.
15. Annual general meeting
The notice of the annual general meeting will be included in the annual report
that will be posted to shareholders in due course.
16. Post-balance sheet events
During March 2008, Zinox Technologies Limited ("Zinox") merged with two Nigerian
distribution companies with the intention of undertaking a private placement and
applying to the Nigerian Stock Exchange for a listing before 31 December 2008.
The merger was settled through the issue of Zinox shares that resulted in a
dilution in the Group`s investment from 30% to 12%. After significant
consideration of all the available data, it was decided that the investment
should be disclosed at cost plus equity accounted earnings of R28,1 million in
terms of the exception allowed by paragraph 46 (c) of IAS 39, Financial
Instruments: Recognition and Measurement. The application list for the private
placement opened on 28 August 2008 and will close on 24 September 2008. Shares
are being offered to the market at N8,90 per share, which if successfully
placed, will effectively value Mustek`s investment at R215,0 million when
converted at the year-end exchange rate of N15,2229 to R1.
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 C Kan Chief Executive Officer
Wilson Vulindlela Cuba Chairman
29 August 2008
Corporate information: www.mustek.co.za
Company secretary: Neels Coetzee
Transfer secretaries: Computershare Investor Services (Pty) Limited, 70 Marshall
Street, Johannesburg, 2001.
PO Box 61051, Marshalltown, 2107, South Africa. Telephone: (011) 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
E-mail: ltd@jhb.mustek.co.za
Sponsor: Deloitte & Touche Sponsor Services (Pty) Limited
Date: 29/08/2008 07:30:01 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,
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howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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