MERGERS, ACQUISITIONS AND FINANCIAL RESULTS

RAND VOLATILITY DEALS MUSTEK PROFIT BLOW

Foreign-exchange losses have again severely dented computer manufacturer Mustek's operating profit with the rand's "sudden and sharp" depreciation forcing it to account for R57m in unrealised foreign-exchange losses.

Its headline earnings a share fell to 43,3c in the year to June from 86c previously. Some of the losses should be recovered in the new financial year as the rand strengthens and Mustek puts up its prices to recover lost ground, CEO David Kan said yesterday.

A final dividend of 25c a share was declared, topping up an interim dividend of 35c, matching the total dividend of 60c paid out in the previous year.

Mustek produces SA's top-selling Mecer PC, and imports a range of information technology hardware. It has been hit at least twice in the recent past by foreign exchange losses as it misjudged currency fluctuations, leading to a policy of partially hedging against the volatility through forward-exchange contracts.

Its results issued yesterday show revenue up from R2,8bn to R3bn and gross profit up from R471m to R502m. But a rise in operating expenses left its net profit down from R96m to R74,5m. Gross margin remained stable at 16,6%.

The 8% rise in revenue from continuing operations was stoked by a 10% increase in the number of Mecer PCs it sold, and a higher contribution from its international operations.

However, Mustek may pull out of its operations in Brazil, which it opened to produce affordable computers for the massive Brazilian market. The division saw revenue growth of 45%, but lost R12,2m due to low profit margins and a lack of manufacturing experience. Mustek will reassess the feasibility and decide whether to remain in Brazil.

Efforts to stem continuing losses in the UK arm of its hardware distributor Rectron proved insufficient, and the UK operation was closed.

A strong focus on working capital management created a solid operating cash flow of R222m, Kan said, and cash resources stand at R477m. That was partly aided by selling Rectron's buildings in Johannesburg and Durban for R95m.

During the period, Mustek bought the 30% of Brother Business Machines that it did not own, then funded the sale of that 30% to a black empowerment consortium. Kan said the managers were committed to further transformation and economic empowerment of its stakeholders, with a caveat of ensuring there were commercial benefits to improve the sustainability of the group in a competitive sector.

Big clients include large companies, government, parastatals, retail and IT dealers. Kan said the IT industry was in a growth phase likely to go on until at least 2010. Microsoft's next operating system, Vista, due next year, should drive a new round of hardware upgrades.

The steadily falling cost of broadband in SA should stimulate demand for more home computers and the market for home PCs was barely tapped and offered huge potential, he said.

Business Day

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