Mustek feels earnings squeeze

By Kimberly Guest for Mustek
Johannesburg, 29 Feb 2008

Mustek is not too concerned at its latest financial performance, despite delivering a 36% decline in earnings per share, says FD Hein Engelbrecht.

The company's results for the six months ended 31 December saw revenue increase 3%, to R1.5 billion. Gross profit declined 7%, to R254 million, and headline earnings dipped 46%, to R28 million.

However, Engelbrecht points out that the largest knock to its earnings came by way of a fair valuation loss of R16 million.

"We bought into Wavetrend Technologies in the late nineties. Since then the company has embarked on cash-raising exercises twice. In the first, we saw a fair valuation profit, but the latest resulted in loss. It is basically a case of accounting practices," he says.

Feeling the heat

Of the four trading divisions, only Brotek and Comztec delivered revenue growth. Both Rectron and Mecer saw revenue declines of 3% and 9%, respectively. At an operating profit line, only Comztec and Mecer were able to deliver growth.

Engelbrecht says operating performance was mostly affected by Rectron, which saw operating profit decline by 23%, and Brotek, which halved its operating profit.

"Rectron has experienced a squeeze, but we are expecting this division to return to normal at the full-year. Brotek, our only operation which imports products priced in euros, felt the pressure of exchange fluctuations which impacted on profit margins," he explains.

Rectron is yet to feel the impact of losing its distribution agreement with HP. However, Engelbrecht says it is unlikely to be too negative.

Mustek continues to look at ways to improve margins and reduce costs, says Engelbrecht. These efforts, together with a strong second half, should return the company to better margins.

The company has proposed a dividend of 20c.