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MST
MST
Mustek Limited - Audited financial results for the year ended 30 June 2006
Mustek Limited
(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 2006
Bank balances and cash of R477 million
Total dividend of 60 cents
CONDENSED CONSOLIDATED INCOME STATEMENT
Restated
2006 2005
R000 R000
Continuing operations
Revenue 3 056 451 2 842 287
Cost of sales (2 553 827) (2 371 261)
Gross profit 502 624 471 026
Other income 17 738 15 697
Distribution, administrative and
other operating expenses (412 067) (319 641)
Share of profit (loss) of associates 4 660 (567)
Profit from operations 112 955 166 515
Investment revenues 28 946 32 505
Finance costs (63 846) (56 343)
Other (losses) and gains (624) 2 249
Profit before tax 77 431 144 926
Income tax expense (15 966) (42 807)
Profit for the year from continuing
operations 61 465 102 119
Discontinued operations
Profit (loss) for the year from
discontinued operations 13 128 (6 176)
Profit for the year 74 593 95 943
Attributable to:
Equity holders of the parent 61 821 82 199
Minority interest 12 772 13 744
74 593 95 943
Earnings and dividend per share (cents)
Weighted number of ordinary shares
in issue 106 595 794 103 723 755
From continuing and discontinued
operations:
Basic earnings per ordinary share 58,00 79,25
Diluted basic earnings per
ordinary share 56,92 76,33
Dividend per ordinary share - paid 65,00 55,00
Dividend per ordinary share - proposed 25,00 30,00
From continuing operations:
Basic earnings per ordinary share 49,89 83,17
Diluted basic earnings per
ordinary share 48,96 80,10
Headline earnings per share (cents)
From continuing and discontinued
operations:
Headline earnings per ordinary share 44,15 89,46
Diluted headline earnings per ordinary
share 43,33 86,17
From continuing operations:
Headline earnings per ordinary share 47,85 95,88
Dilluted headline earnings per
ordinary share 46,97 92,35
Reconciliation between basic and
headline earnings
Basic earnings attributable to
equity holders of the parent 61 821 82 199
Profit on disposal of associate - (2 239)
Impairment of goodwill 298 5 852
Group"s share of profit on disposal
of subsidiaries and other businesses (12 596) (3 950)
Group"s share of (profit)loss on
disposal of property, plant and
equipment (2 465) 141
Impairment of associates - 10 793
Headline earnings 47 058 92 796
CONDENSED CONSOLIDATED BALANCESHEET
Restated
2006 2005
R000 R000
ASSETS
Non-current assets
Property, plant and equipment 105 429 144 946
Intangible assets 11 735 3 598
Investments in associates 28 557 21 603
Investment in joint venture 1 106 830
Other investments and loans 26 868 26 434
Deferred tax assets 30 330 20 202
Non-current trade and other receivables 22 116 13 233
226 141 230 846
Current assets
Inventories 763 399 611 277
Trade and other receivables 401 695 434 122
Foreign currency assets 10 599 6 304
Tax assets 10 814 15 354
Bank balances and cash 476 921 398 402
1 663 428 1 465 459
TOTAL ASSETS 1 889 569 1 696 305
EQUITY AND LIABILITIES
Capital and reserves
Ordinary share capital 860 837
Ordinary share premium 95 017 85 567
Preference share capital 265 265
Preference share premium 4 000 4 000
Retained earnings 398 848 406 467
Revaluation reserve 2 014 681
Foreign currency translation reserve 4 819 2 466
Equity attributable to equity holders
of the parent 505 823 500 283
Minority interest 69 594 80 615
Total equity 575 417 580 898
Non-current liabilities
Long-term borrowings 115 805 245 330
Deferred tax liabilities 808 469
116 613 245 799
Current liabilities
Short-term borrowings 173 470 61 931
Trade and other payables 976 556 768 298
Provisions 11 628 6 975
Foreign currency liabilities 5 655 -
Deferred income 20 729 9 144
Tax liabilities 7 029 2 652
Loan from associate - 329
Bank overdrafts 2 472 20 279
1 197 539 869 608
Total liabilities 1 314 152 1 115 407
TOTAL EQUITY AND LIABILITIES 1 889 569 1 696 305
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
2006 2005
R000 R000
Operating activities
Cash receipts from customers 3 211 073 2 864 120
Cash paid to suppliers and employees (2 989 010) (2 744 938)
Net cash from operations 222 063 119 182
Investment revenues received 19 039 26 944
Finance costs paid (63 416) (55 843)
Dividends received 9 937 5 590
Dividends paid (69 440) (57 112)
Income taxes paid (19 429) (30 146)
Net cash from operating activities 98 754 8 615
Net cash from (used in) investing
activities 11 962 (70 257)
Net cash (used in) from financing
activities (32 197) 45 749
Net increase (decrease) in cash and
cash equivalents 78 519 (15 893)
Cash and cash equivalents at beginning
of the year 398 402 414 295
Cash and cash equivalents at end
of the year 476 921 398 402
RECONCILIATION OF PREVIOUS GAAP TO IFRS
Equity Profit
30 June 1 July 30 June
2005 2004 2005
R000 R000 R000
Previous GAAP 577 813 522 463 96 895
IFRS 1 - First-time Adoption
of IFRS
- Retained earnings (7 783) (7 783) -
- Foreign currency translation
reserve 7 783 7 783 -
IFRS 2 - Share-based Payment
- Retained earnings (4 297) (2 664) (1 632)
- Capital reserves 4 297 2 664 -
IAS 16 - Property, Plant and
Equipment
- Reduction in depreciation 4 336 3 415 1 022
- Loss on sale of property,
plant and equipment - - (115)
- Tax effect on the above (1 251) (1 024) (227)
IFRS 580 898 524 854 95 943
CONDENSED SEGMENT ANALYSIS
Business segments Total Mecer Rectron
R000 R000 R000
Continuing operations
Revenue 3 056 451 1 487 912 1 266 814
EBITDA 127 953 32 451 55 447
Depreciation (19 362) (7 596) (11 078)
Amortisation of intangible
assets (296) (296) -
Share of profit of associates 4 660 - -
Operating profit 112 955 24 559 44 369
Investment revenues 28 946 25 507 962
Finance costs (63 846) (41 267) (18 916)
Other losses (624) - -
Profit before tax 77 431 8 799 26 415
Income tax (expense) benefit (15 966) 3 998 (9 089)
Profit for the year from
continuing operations 61 465 12 797 17 326
Discontinued operations
Profit for the year from
discontinued operations 13 128 - 13 128
Profit for the year 74 593 12 797 30 454
Attributable to:
Equity holders of the parent 61 821 12 797 18 333
Minority interest 12 772 - 12 121
74 593 12 797 30 454
Business segments (continued)
Brotek Comztek Investments Eliminations
R000 R000 R000 R000
Continuing operations
Revenue 146 167 256 788 - (101 230)
EBITDA 26 788 13 267 - -
Depreciation (195) (493) - -
Amortisation of
intangible assets - - - -
Share of profit of
associates - 193 4 467 -
Operating profit 26 593 12 967 4 467 -
Investment revenues 2 280 680 - (483)
Finance costs (17) (4 129) - 483
Other losses - (298) (326) -
Profit before tax 28 856 9 220 4 141 -
Income tax (expense)
benefit (8 326) (2 311) (238) -
Profit for the year
from continuing
operations 20 530 6 909 3 903 -
Discontinued operations
Profit for the year
from discontinued
operations - - - -
Profit for the year 20 530 6 909 3 903 -
Attributable to:
Equity holders of the
parent 20 530 6 258 3 903 -
Minority interest - 651 - -
20 530 6 909 3 903 -
Geographical segments
South South
Total Africa America
R000 R000 R000
Continuing operations
Revenue 3 056 451 2 803 289 115 599
Profit (loss) for the year from
continuing operations 61 465 73 312 (12 161)
Discontinued operations
Profit (loss) for the year from
discontinued operations 13 128 (324) -
Profit (loss) for the year 74 593 72 988 (12 161)
Attributable to:
Equity holders of the parent 61 821 61 410 (12 161)
Minority interest 12 772 11 578 -
74 593 72 988 (12 161)
Geographical segments (continued)
Mecer
East Rectron Rectron Comztek
Africa Australia UK Africa
R000 R000 R000 R000
Continuing operations
Revenue 12 761 119 424 - 5 378
Profit (loss) for the
year from continuing
operations (243) 853 - (296)
Discontinued operations
Profit (loss) for the
year from discontinued
operations - - 13 452 -
Profit (loss) for
the year (243) 853 13 452 (296)
Attributable to:
Equity holders of the
parent (243) 310 13 452 (947)
Minority interest - 543 - 651
(243) 853 13 452 (296)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Ordinary Ordinary Preference Preference
share share share share Retained
capital premium 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
Profit for the
year - - - - 82 199
Shares issued in
terms of option
scheme 25 8 143 - - -
Recognition of
share-based
payments - 1 633 - - -
Preference share
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
Profit for
the year - - - - 61 821
Shares issued
in terms of
option scheme 23 6 842 - - -
Recognition of
share-based
payments - 2 608 - - -
Dividends paid - - - - (69 440)
Asset
revaluation - - - - -
Net foreign
currency
translation
reserve -
foreign entities - - - - -
Investments in
subsidiaries - - - - -
Balance at
30 June 2006 860 95 017 265 4 000 398 848
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (continued)
Attribut-
able to
Revaluation Translation equity
holders Minority
reserve reserve of the
parent interest Total
R000 R000 R000 R000 R000
Balance at
1 July 2004 - (7 783) 455 992 66 471 522 463
Effect of
changes in
accounting
policies - 7 783 1 991 400 2 391
Restated
balance at
1 July 2004 - - 457 983 66 871 524 854
Profit for
the year - - 82 199 13 744 95 943
Shares
issued in
terms of
option
scheme - - 8 168 - 8 168
Recognition
of share-
based
payments - - 1 633 - 1 633
Preference
share
issued - - 4 265 - 4 265
Dividends
paid - - (57 112) - (57 112)
Asset
revaluation 681 - 681 - 681
Net foreign
currency
translation
reserve -
foreign
entities - 2 466 2 466 - 2 466
Balance at
30 June
2005 681 2 466 500 283 80 615 580 898
Profit for
the year - - 61 821 12 772 74 593
Shares
issued in
terms of
option
scheme - - 6 865 - 6 865
Recognition
of share
-based
payments - - 2 608 - 2 608
Dividends
paid - - (69 440) - (69 440)
Asset
reval-
uation 1 333 - 1 333 275 1 608
Net foreign
currency
translation
reserve -
foreign
entities - 2 353 2 353 261 2 614
Investments
in
sub-
sidiaries - - - (24 329) (24 329)
Balance at
30 June
2006 2 014 4 819 505 823 69 594 575 417
COMMENTARY
1. Basis of presentation
These consolidated condensed financial statements for the year ended 30 June
2006 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 for the JSE Limited and the Companies Act of South Africa.
2. Accounting policies
The Group is reporting under IFRS for the first time for the year ended 30 June
2006, and accordingly comparatives have been restated where necessary. The
audited results for the year ended 30 June 2006 have been prepared in accordance
with the Group"s accounting policies which comply with IFRS. The following IFRSs
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 IAS 16 - Property, Plant and Equipment. This statement
has been applied retrospectively.
Foreign currency translation reserve
The Group has elected to apply the exemption afforded in IFRS 1 - First-time
Adoption of IFRS whereby the foreign currency translation reserve is reset to
zero at date of transition.
Deferred tax and minority interest
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 ordinary share premium in the balance sheet.
Business combinations
The Group has elected not to retrospectively apply the requirements of IFRS 3 -
Business Combinations to business combinations with agreements dated before 31
March 2004.
3. Audit report
The consolidated financial statements for the year have been audited by Deloitte
& Touche and Henry K. H. Pon & Co, 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 with the Code on Corporate Governance
Practices and Conduct as contained in the second King Report on Corporate
Governance.
5. Transformation
Management has meaningfully extended its initiatives in employment equity,
skills development and corporate social investment during the year. The Group is
committed to continue a process of further transformation and economic
empowerment of its stakeholders, such that acceptable balance between the
imperatives 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
The board wishes to thank Sindi Mabaso who resigned at the end of the financial
year for professional reasons. Her valuable contribution made to the Group is
acknowledged and it wishes her well in her future endeavours.
7. Corporate activities
During the period under review, Mustek acquired the 30% of Brother Business
Machines (Brotek) that it did not own, and subsequently funded the disposal of
that 30% acquired to a broad-based black economic empowerment consortium.
Rectron disposed of its Johannesburg and Durban buildings for R95 million and
discontinued its UK operation.
8. Cash flow
A continued and strong focus on working capital management has resulted in solid
cash flows from operations of R222 million.
Bank balances and cash remained strong at R477 million due to focused working
capital management and the disposal of the Rectron buildings. Maintenance of
prudent levels of inventory is essential given the nature of the business and
the successful servicing of large tenders. The increase in creditors was in line
with the increased trading activity.
9. Operating results
Mustek"s major clients include corporate, government, parastatals, retail and an
extensive dealer network.
Mustek achieved another satisfactory operational performance.
The increase in Group revenue from continuing operations of 8% was assisted by
10% increase in total units of Mecer PCs sold, the contribution from the
international operations and the proportionate consolidation of Comztek for the
full twelve-month period.
The Group"s gross margin from continuing operations remained relatively
consistent.
The Group has a policy of partially hedging against currency volatility by way
of forward exchange contracts.
Operating profit margin was severely affected by unrealised foreign exchange
losses. The sudden and sharp depreciation of the Rand during the six weeks prior
to year-end resulted in Mecer having to account for R41,3 million unrealised
foreign exchange losses and Rectron R26,1 million on the revaluation of accounts
payable at year-end. Some of these losses are expected to be recovered in the
new financial year through higher selling prices and the strengthening of the
Rand subsequent to year-end.
Mecer Brazil"s revenue has grown by 45%. However, the operation incurred a loss
of R12,2 million mainly due to low gross margins and a lack of manufacturing
experience. Mustek will continue assessing the feasibility and consider whether
it should continue operations in Brazil. Rectron"s loss-making UK operation has
been discontinued, resulting in losses of R 24,0 million and a profit on
discontinuance of R 19,1 million
Brotek and Comztek have shown a substantial improvement in performance and are
positioned to repeat this into the future. The net asset value per share is
470,47 cents(2005:478,08 cents)
10. Industry outlook
Our view is that the ICT industry is in a phase of transformation and growth
which is expected to continue to at least 2010.
Microsoft"s next generation operating system VISTA is intended to replace the
current 32-bit XP and server platform. 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 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. Reduced costs of broadband will further stimulate growth in
this market.
NEPAD"s aim to accelerate the development and use of ICT infrastructure to
bridge the digital divide within Africa bodes well for computer hardware
distributors in the next 5 to 10 years.
Current computer literacy levels are extremely low when compared to first-world
countries and must be raised to make South Africa and Africa globally
competitive.
South Africa"s home user market has barely been tapped and offers huge potential
for future sales.
Various initiatives are being launched by international ICT companies
specifically focused on the underdeveloped markets of the world.
- Intel and AMD have reduced the prices of CPUs substantially in recent months.
- Intel launched its APC (Affordable PC) concept. The PC is designed to operate
in a rigid environment, at a price point that will be affordable to sectors of
the market they previously could not reach.
- Microsoft released Starterpack, 63% cheaper than the home edition, to
discourage piracy and reach a higher level of legal PCs.
- Microsoft"s Flex-Go will be released soon, following a pay-as-you-go concept
for both software and hardware.
We believe that the Mustek Group is well positioned to benefit from these
initiatives.
11. BEE transaction
In terms of the BEE agreement between Mustek Limited, Safika Holdings (Pty)
Limited and Mduduzi Edward Gama, the board of Mustek needs to review the
transaction and is considering its options and will be approaching shareholders
as soon as a decision has been made on the way forward.
12. Group outlook
Growth prospects for the next financial year are likely to be most influenced by
the extent of the rollout of equipment replacement by Government and industry,
market retention by Mustek, the volatility of the currency, the level at which
prime increased are accepted in the South African IT market and the demand for
PCs.
While there are signs that higher inflation and interest rates are beginning to
impact on South African consumers, it is anticipated that the continued focus on
product supply and availability, coupled with marketing initiatives, will
stimulate demand and result in satisfactory performance by the Group.
13. 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 a final dividend of 25 cents per
ordinary share for the period ended 30 June 2006 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 dates applicable to the final
dividend are as follows:
Last day of trade cum dividend Thursday, 21 September 2006
First day to trade ex dividend Friday, 22 September 2006
Record date Friday, 29 September 2006
Payment date Monday, 2 October 2006
No share certificates may be dematerialised or rematerialised between Friday, 22
September 2006 and Friday, 29 September 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 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.
14. Post-balance sheet events
There have been no 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
31 August 2006
Corporate information: www.mustek.co.za
Company secretary: Neels Coetzee
Transfer secretaries:
Computershare Investor Services 2004 (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
Sponsor: Deloitte & Touche Sponsor Services (Pty) Limited
Date: 31/08/2006 05:16:16 PM Produced by the JSE SENS Department
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