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MST
MST
Mustek - Unaudited interim results for the six months ended 31 December 2005
Mustek Limited
(Incorporated in the Republic of South Africa)
(Registration number 1987/070161/06)
Share code: MST ISIN: ZAE000012373
("Mustek" or "the Group")
Unaudited interim results for the six months ended 31 December 2005
- Interim dividend increase to 35 cents
- Continued strong balance sheet
CONSOLIDATED INCOME STATEMENT
Unaudited Restated Restated
6 months 6 months Year-end
31 Dec 31 Dec 30 June
2005 2004 2005
R000 R000 R000
Revenue 1 554 497 1 346 225 2 942 244
Cost of sales (1 325 474) (1 138 480) (2 469 795)
Gross profit 229 023 207 745 472 449
Distribution, administrative
and other operating expenses (136 858) (116 474) (299 335)
EBITDA* 92 165 91 271 173 114
Depreciation (10 763) (8 337) (15 526)
Amortisation of intangible
assets (200) (118) (564)
Operating profit 81 202 82 816 157 024
Share of profit of associates 2 567 2 852 (567)
Investment revenues 14 578 16 023 32 534
Other gains and losses - 2 239 6 182
Finance costs (26 599) (23 231) (47 687)
Trade finance commission (5 795) (3 235) (8 806)
Profit before tax 65 953 77 464 138 680
Income tax expense (10 794) (24 352) (42 737)
Profit for the year 55 159 53 112 95 943
Attributable to:
Equity holders of the parent 47 891 44 839 82 199
Minority interest 7 268 8 273 13 744
55 159 53 112 95 943
*EBITDA - earnings before
interest, taxation, depreciation
and amortisation
Earnings and dividend per
share (cents)
Weighted number of ordinary
shares in issue 105 757 304 102 421 873 103 723 755
Headline earnings per ordinary
share 45,28 41,59 89,33
Diluted headline earnings per
ordinary share 44,15 40,20 86,04
Basic earnings per ordinary
share 45,28 43,78 79,25
Diluted basic earnings per
ordinary share 44,15 42,31 76,33
Dividend per ordinary share
- paid 30,00 25,00 55,00
Dividend per ordinary share
- proposed 35,00 30,00 30,00
Reconciliation between basic
and headline earnings R000 R000 R000
Basic earnings attributable to
equity holders of the parent 47 891 44 839 82 199
Profit on disposal of associate - (2 239) (2 239)
Impairment of goodwill - - 5 852
Group"s share on profit on
disposal of subsidiaries
and other businesses - - (3 950)
Impairment of associates - - 10 793
Headline earnings 47 891 42 600 92 655
CONSOLIDATED BALANCE SHEET
Unaudited Restated Restated
6 months 6 months Year-end
31 Dec 31 Dec 30 June
2005 2004 2005
R000 R000 R000
ASSETS
Non-current assets
Property, plant and equipment 153 174 92 910 144 946
Intangible assets 3 867 2 450 3 598
Investments in associates 8 110 19 996 5 551
Other investments 22 834 6 645 24 270
Non-current trade and other
receivables 21 210 - 13 233
Deferred taxation asset 27 870 24 931 20 202
237 065 146 932 211 800
Current assets
Inventories 546 959 432 470 611 277
Trade and other receivables 469 086 425 154 434 122
Foreign currency assets - - 6 304
Tax assets 12 464 19 300 15 354
Loans to associates 16 657 15 273 16 052
Loans to joint venture 2 212 2 212 830
Other loans 4 104 5 442 2 164
Bank balances and cash 228 730 316 779 398 402
1 280 212 1 216 630 1 484 505
TOTAL ASSETS 1 517 277 1 363 562 1 696 305
EQUITY AND LIABILITIES
Capital and reserves
Share capital 854 825 837
Capital reserves 91 874 79 452 85 567
Preference share capital 265 265 265
Preference share premium 4 000 4 000 4 000
Retained earnings 422 548 397 454 406 467
Revaluation reserve 681 - 681
Foreign currency translation
reserve 981 (2 374) 2 466
521 203 479 622 500 283
Minority interest 63 351 75 826 80 615
Total equity 584 554 555 448 580 898
Non-current liabilities
Long-term borrowings 68 170 239 419 245 330
Deferred tax liability 241 - 469
68 411 239 419 245 799
Current liabilities
Foreign currency liabilities 4 102 9 413 -
Trade and other payables 574 830 453 157 775 273
Short-term borrowings 241 231 23 987 61 931
Deferred income 8 466 11 379 9 144
Tax liabilities 3 377 967 2 652
Loan from associate - - 329
Bank overdrafts 32 306 69 792 20 279
864 312 568 695 869 608
Total liabilities 932 723 808 114 1 115 407
TOTAL EQUITY AND LIABILITIES 1 517 277 1 363 562 1 696 305
CONSOLIDATED CASH FLOW STATEMENT
Unaudited Restated Restated
6 months 6 months Year-end
31 Dec 31 Dec 30 June
2005 2004 2005
R000 R000 R000
Operating activities
Cash receipts from customers 1 515 588 1 292 628 2 864 120
Cash paid to suppliers and
employees (1 583 237) (1 346 540) (2 744 938)
Net cash from operations (67 649) (53 912) 119 182
Investment revenues received 10 231 16 023 26 944
Finance costs paid (32 069) (26 466) (55 843)
Dividends received 4 347 - 5 590
Dividends paid (31 810) (25 575) (57 112)
Income taxes paid (16 075) (24 399) (30 146)
Net cash (used in) from
operating activities (132 025) (114 329) 8 615
Net cash used in investing
activities (57 616) (24 747) (70 257)
Net cash from financing
activities 19 969 41 560 45 749
Net decrease in cash and cash
equivalents (169 672) (97 516) (15 893)
Cash and cash equivalents at
beginning of the year 398 402 414 295 414 295
Cash and cash equivalents at
end of the period 228 730 316 779 398 402
COMMENTARY
1. BASIS OF PRESENTATION
The Group is reporting under International Financial Reporting Standards (IFRS)
for the first time for the six months ended 31 December 2005, and, accordingly
comparatives have been restated where necessary. The unaudited results for the
six months ended 31 December 2005 have been prepared in accordance with the
Group"s accounting policies, which comply with IFRS. The following IFRSs have
impacted on the Group"s accounting policies:
Property, plant and equipment
The residual values and useful lives of major items of property, plant and
equipment have been assessed and where applicable, depreciation has been
adjusted as required by IAS16 Property Plant and Equipment. This statement has
been applied retrospectively.
Foreign currency translation reserve
The Group has elected to apply the exemption afforded in IFRS1 First time
adoption of IFRS whereby the foreign currency translation reserve is reset to
zero at date of transition.
Deferred tax and minority interests
Deferred tax and minority interests have been adjusted for the changes made to
the carrying value of assets and liabilities through the adoption of IFRS.
SHARE-BASED PAYMENTS
IFRS 2-Share-based payments has been applied retrospectively to the employee
share option scheme. The fair value of equity-settled share-based payment
transactions is charged to the income statement and the reciprocal credit is
shown in capital reserves in the balance sheet.
2. CORPORATE GOVERNANCE
The Group subscribes to and complies with the Code on Corporate Governance
Practices and Conduct as contained in the second King Report on Corporate
Governance.
3. OPERATING RESULTS
Mustek"s major clients include corporate, governments, parastatals, retail and
an extensive dealer network. Group revenue increase of 15% was assisted by the
higher average R/$ exchange rate, a 10% increase in total units of Mecer PCs
sold, the bigger contribution from the international operations and the
proportionate consolidation of Comztek for the full six-month period.
The Group"s gross profit and operating profit margin decreased due to the fact
that the international operations trade at much lower margins than the local
operations. Mecer Brazil incurred a loss of R4,9 million and the Group"s share
of Rectron UK"s losses amounted to R2,2 million. Corrective measures have been
implemented to address the performance.
The movement between long-term borrowings and short-term borrowings is due to
the securitisation structures that are maturing during the next twelve months.
Both Mustek and Rectron are currently re-negotiating with funders to extend the
funding for a further five-year period.
4. CORPORATE ACTIVITIES
During the period under review, Mustek acquired the 30% of Brother Business
Machines that it did not own, and subsequently funded the disposal of that 30%
acquired to a broad-based black economic empowerment consortium.
5. INDUSTRY OUTLOOK
Our five-year outlook remains broadly the same as last years, in which we viewed
the global ICT industry as entering a phase of transformation and growth. The
Y2K replacement cycle appears to be under way, although sales have not yet
reached expected levels.
Microsoft"s next-generation operating system, the Vista operating system
software packages, are intended to replace the current 32-bit XP and server
platforms. Scheduled for release in 2006, these new 64-bit packages, and
consequent 64-bit applications arriving on the market, should lead to a new wave
of hardware acquisition beginning in 2007. The 64-bit technology"s processing
capability is significantly faster and more powerful than the current 32-bit
applications, which will drive large-scale re-equipping of ICT infrastructure as
organisations wish to stay abreast of their competitors.
Broadband technologies continued to penetrate the South African market. Telkom"s
DSL fixed-line technology remains by far the most used broadband technology in
South Africa at this time. We believe that the next wave of broadband
connectivity will probably be based on Wi-Max technology. Wi-Max will
offer WLAN-type connectivity over large geographical areas through transmitter
masts similar to those presently used by the mobile companies. Intel has
announced that it will be embedding Wi-Max into its next-generation processors,
which will power both Windows and Macintosh computers. This means that the next-
generation computers will be automatically connectable to cross-country wireless
networks, which should revolutionise always-on connectivity. For Mustek, this
would strengthen the wave of hardware replacements already under way due to the
migration to 64-bit systems.
NEPAD"s aim to accelerate the development and use of ICT infrastructure to
bridge the digital divide within Africa and the rest of the world bodes well for
computer hardware distributors in the next 5 to 10 years.
Education represents a major sector of opportunity for Mustek and other South
African and African suppliers of computer hardware. Current computer literary
levels are extremely low when compared to first-world countries and must be
raised to make South Africa and Africa globally competitive. Various initiatives
are being launched to address this, both from Government and the private sector.
After a careful examination and rigorous testing by curriculum experts, Khanya
concluded that Mecer Inter-Ed is a very useful addition to its education
software offering to Primary schools. One of the outstanding features of the
product is that it is available in all the languages required for the schools to
reach equity among the learners.
South Africa"s home user market has barely been tapped and offers huge potential
for future sales. The convergence of technologies is now driving the home PC and
the traditional home entertainment centre into a single integrated unit. This
will inevitably further heighten demands for home PCs and notebooks.
Requirements are increasing on business in South Africa to demonstrate their
support for locally produced goods and procurement from broad-based black
economic enterprises.
We believe that the Mustek Group is well positioned to benefit from these
requirements.
6. POST-BALANCE SHEET EVENTS
Rectron disposed of its Johannesburg and Durban buildings for R95 million
subject to certain conditions precedent being met.
7. 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.
Accordingly, notice is hereby given that an interim dividend of 35 cents per
share for the period ended 31December 2005 has been declared, payable to
shareholders recorded in the books of the company at the close of business on
the record date appearing below. The salient dated applicable to the interim
dividend are as follows:
Last day to trade cum dividend Thursday, 16 March 2006
First day to trade ex dividend Friday, 17 March 2006
Record date Friday, 24 March 2006
Payment date Monday, 27 March 2006
No share certificate may be dematerialised or rematerialized between Friday, 17
March 2006 and Friday, 24 March 2006, 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 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.
On behalf of the board of directors
David C Kan Chief Executive Officer Wilson Vulindlela Cuba Chairman 2 March
2006
Corporate information: www.mustek.co.za
Company secretary: Neels Coetzee
Transfer secretaries:
Computershare Investor Services 2004 (Proprietary ) 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
Sponsor: Deloitte & Touche Sponsor Services (Pty)Limited
RECONCILIATION OF PREVIOUS GAAP TO IFRS
Equity Profit
30 June 31 Dec 1 July 30 June 31 Dec
2005 20004 2004 2004 2004
Previous GAAP 577 813 568 245 522 463 96 895 54 645
Change in accounting
policy under previous
GAAP
IAS 17 Leases
- Operating lease
smoothing - (23 981) - - (1 638)
- Tax effect on the
above - 7 178 - - 475
IAS 38 Intangible assets
- Amortisation of
software - (12 616) - - (118)
- Tax effect on the
above - 3 801 - - 34
AC 501 Accounting for
secondary tax on
companies
- Unutilised secondary
tax on companies
credits - 8 578 - - (1 147)
Effect of transition
to IFRS
IFRS 1 First-time
adoption of IFRS
- Retained earnings (7 783) (7 783) (7 783) - -
- Foreign currency
translation reserve 7 783 7 783 7 783 - -
IFRS 2 Share-based
payment
- Retained earnings (4 297) (3 481) (2 664) (1 632) (816)
- Capital reserves 4 297 3 481 2 664 - -
IFRS 3 Business
combinations
- Negative goodwill
released - 175 - - -
- Reversal of
amortisation of
goodwill - 1 288 - - 1 288
IAS 16 Property, plant
and equipment
- Reduction in
depreciation 4 336 3 918 3 415 1 022 503
- Loss on sale of
property, plant and
equipment - - - (115) -
- Tax effect on the
above (1 251) (1 138) (1 024) (227) (114)
Total adjustment 3 085 (12 797) 2 391 (952) (1 533)
IFRS 580 898 555 448 524 854 95 943 53 112
SEGMENT ANALYSIS
Total Mecer Rectron Brother
Business segments R000 R000 R000 R000
Revenue 1 554 497 703 314 687 273 63 494
EBITDA 92 165 37 444 36 673 12 605
Depreciation (10 763) (3 638) (6 759) (111)
Amortisation of
intangible assets (200) (200) - -
Operating profit 81 202 33 606 29 914 12 494
Share of profit of
associates 2 567 - - -
Investment revenues 14 578 8 154 3 116 1 835
Finance costs (26 599) (13 131) (10 018) (5)
Trade finance
commission (5 795) (4 831) (964) -
Profit before tax 65 953 23 798 22 048 14 324
Income tax expense (10 794) (315) (5 593) (4 063)
Profit for the year 55 159 23 483 16 455 10 261
Attributable to:
Equity holders of
the parent 47 891 23 483 9 838 10 261
Minority interest 7 268 - 6 617 -
55 159 23 483 16 455 10 261
South Mecer Mecer
Total Africa Brazil East Africa
Geographical segments R000 R000 R000 R000
Revenue 1 554 497 1 343 408 49 772 5 976
Profit (loss) for
the year 55 159 63 137 (4 955) (42)
Attributable to:
Equity holders of
the parent 47 891 55 382 (4 955) (42)
Minority interest 7 268 7 755 - -
55 159 63 137 (4 955) (42)
SEGMENT ANALYSIS
Comztek Invesments Eliminations
Business segments R000 R000 R000
Revenue 113 028 - (12 612)
EBITDA 5 443 - -
Depreciation (255) - -
Amortisation of
intangible assets - - -
Operating profit 5 188 - -
Share of profit of
associates 76 2 491 -
Investment revenues 1 738 - (265)
Finance costs (3 710) - 265
Trade finance
commission - - -
Profit before tax 3 292 2 491 -
Income tax expense (823) - -
Profit for the year 2 469 2 491 -
Attributable to:
Equity holders of the
parent 1 818 2 491 -
Minority interest 651 - -
2 469 2 491 -
Rectron Rectron Comztek
Australia UK Africa
Geographical segments R000 R000 R000
Revenue 61 199 83 627 10 515
Profit (loss) for
the year 1 115 (3 336) (760)
Attributable to:
Equity holders of
the parent 462 (2 196) (760)
Minority interest 653 (1 140) -
1 115 (3 336) (760)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Ordinary Preference Preference
share Capital share share Retained
capital reserves capital premium earnings
R000 R000 R000 R000 R000
Balance at
1 July 2004 812 73 127 - - 389 836
Effect of
changes in
accounting
policies - 2 664 - - (8 456)
Restated
balance at
1 July 2004 812 75 791 - - 381 380
Net profit for
the year - - - - 82 199
Shares issued
in terms of
option scheme 25 8 143 - - -
Recognition of
share-based
payments - 1 633 - - -
Preference
shares issued - - 265 4 000 -
Dividends paid - - - - (57 112)
Asset
revaluation - - - - -
Net foreign
currency
translation
reserve -
foreign
entities - - - - -
Balance at
30 June 2005 837 85 567 265 4 000 406 467
Net profit for
the period - - - - 47 691
Shares issued
in terms of
option scheme 17 5 785 - - -
Recognition of
share-based
payments - 522 - - -
Dividends paid - - - - (31 810)
Investments in
subsidiaries - - - - -
Net foreign
currency
translation
reserve -
foreign
entities - - - - -
Balance at
31 December
2005 854 91 874 265 4 000 422 548
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Revaluation Translation Minority
reserve reserves interest Total
R000 R000 R000 R000
Balance at
1 July 2004 - (7 783) 66 471 522 463
Effect of
changes in
accounting
policies - 7 783 400 2 391
Restated
balance at
1 July 2004 - - 66 871 524 854
Net profit for
the year - - 13 744 95 943
Shares issued
in terms of
option scheme - - - 8 168
Recognition of
share-based
payments - - - 1 633
Preference
shares issued - - - 4 265
Dividends paid - - - (57 112)
Asset
revaluation 681 - - 681
Net foreign
currency
translation
reserve -
foreign
entities - 2 466 - 2 466
Balance at
30 June 2005 681 2 466 80 615 580 898
Net profit for
the period - - 7 268 55 159
Shares issued
in terms of
option scheme - - - 5 802
Recognition of
share-based
payments - - - 522
Dividends paid - - - (31 810)
Investments in
subsidiaries - - (24 532) (24 532)
Net foreign
currency
translation
reserve -
foreign
entities - (1 485) - (1 485)
Balance at
31 December
2005 681 981 63 351 584 554
Date: 02/03/2006 05:15:24 PM Produced by the JSE SENS Department
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