The value of the rand has dropped 21.6% against the dollar in the past year, causing a R50.5 million foreign exchange loss for local distributor Mustek in the year to June.
Financial director Neels Coetzee says Mustek had a tough period considering the rand's devaluation, which had a material effect on Mustek's numbers as it buys stock in dollars. Mustek reported revenue from continuing operations up 16%, to R4 billion, cash from operations up 226%, to R145.5 million, and increased its dividend 18%, to 20c.
The shift in currency had an impact on its bottom line, says Coetzee. He notes that if the currency was a bit more predictable, it would be easier to do business.
Profit for the year from continuing operations came in marginally higher at R81.9 million, compared with R79.8 million last year. At the end of last year, the rand was at R8.19 against the dollar, and dropped to R9.96 by the end of June this year. It is currently at R10.30.
Mustek changed its policy to cover two-thirds of its exposure to the dollar and managed to contain the foreign exchange losses to R50.5 million, compared with R47.8 million last year. As a result, Mustek's headline earnings from continuing and discontinued operations were marginally (3.9%) higher, at 72.85c a share.
However, Coetzee says the drop in the value of the local currency was not all bad, as it led to revenue gains. Mustek passes on the weaker currency, which he expects to lead to a 10% revenue gain in the new financial year based on the rand's current performance.
In addition, says Coetzee, its margins have stayed consistent, which means gross profit gains.
Boosting the range
Adding Acer and Lenovo to its product range over the past 12 months aided revenue growth, but negatively impacted margins as these products are typically sold at lower margins.
As the products are more commoditised, they sell at lower margins, explains Coetzee. However, the group is seeing volume gains, without additional costs, so it is still making money and adding to the bottom line, he adds.
Mustek wants to continue adding more products to its range and has been investing in growing its offerings, says Coetzee. It has expanded its basket of products with the introduction of multiple offerings, including Huawei Enterprise Solutions and the Miniflex range of fibre cables, as well as solar panels.
Coetzee says its Huawei range opens a new world of opportunities and provides an alternative to Cisco.
Comztek, which Mustek sold to Datatec, offers Cisco products. Datatec paid R88 million for Comztek, buying it from Mustek and other shareholders, and is merging it with its local Westcon unit. The deal doubles Westcon's African business and gives it access to 26 countries.
Coetzee says Mustek has just inked a deal to provide Huawei products to the State IT Agency after knocking on its doors for years to get its first sale. The opening paves the way for more business and Mustek expects good growth from its Huawei offerings, he notes.
Mustek, which has seen its operating expenses grow as a result of its investment into new capabilities, is also hopeful about its range of high-end CCTV solutions. Coetzee says it is trying to get into the growing market.
Distribution, administrative and other operating expenses gained to R371.5 million from R333.6 million.
Its bread and butter, however, will remain with its core offerings such as mobile computing and tablets, says Coetzee.
Its share closed flat at R5.20 yesterday.
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