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Remote working boosts PC distributor Mustek

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David Kan, CEO of Mustek.
David Kan, CEO of Mustek.

Distributor Mustek has posted strong results thanks to a boom in business created by remote working during the COVID-19 lockdown.

The group says it had exceptional trading performance over the six months to December 2020, with its diversified portfolio of products and services providing a clear advantage in the marketplace.

Revenue continued the growth trajectory that started during the previous financial year due to surging demand sparked by remote working requirements, says the company.

Last month, David Kan, CEO of the JSE-listed distributor of personal computers, said the company is expecting a bumper profit for the six months ended December 2020, after enduring crippling job stoppages in the same period.

The group’s revenue increased by 23.7% to R3.72 billion (31 December 2019: R3.01 billion). “It is pleasing to note that the revenue growth was across the board, with the group’s two largest segments – Mustek and Rectron – growing their revenue by 22.2% and 23.5% respectively,” the company says.

The gross profit percentage was lower compared to the comparative period at 13.9% (31 December 2019: 14.4%), predominantly as a result of product mix and a stronger ZAR/USD exchange rate that leads to downward pressure on selling prices.

The company explains that the ZAR/USD exchange rate strengthened during the period and the group managed to earn foreign currency profit of R21.1 million compared to a foreign currency loss of R6.5 million in the comparative period.

It notes that distribution, administrative and other operating expenses increased by 7.1%, mainly as a result of higher commissions paid on the increased gross profit.

Net finance charges decreased from R55.5 million to R35.7 million, predominantly as a result of lower interest rates.

The contribution from associates decreased slightly from R8.2 million to R7.8 million, says Mustek, pointing out that the contribution from Sizwe was negatively impacted by a loss on the sale of an investment in a subsidiary and the group’s share of this loss of R3 million is added back in the calculation of headline earnings.

The group owns 25.1% of YOA, an associate company that manufactures fibre-optic cable and contributed R5.9 million towards associate income.

Rectron benefited from the surge in demand for its products, and the addition of HP Printers, Zebra and DJI Enterprise to its range of products during the second half of the 2020 financial year assisted its growth.

According to the company, inventories include goods in transit of R294.8 million (December 2019: R146.5 million). Inventory days (excluding inventories in transit) improved to 86.3 days (December 2019: 91.4 days).

Trade receivable days improved to 53.4 days (December 2019: 54.5 days). Mustek’s headline earnings per share is 166.7% higher at 202.11c (31 December 2019: 75.79c) and basic earnings per share is 160.6% higher at 197.34c (31 December 2019: 75.72c).

The R113.5 million cash used in (31 December 2019: R5.2 million cash from) operations was mainly due to an increase in inventory, says Mustek, adding this was funded by bank overdraft facilities and is expected to reverse in the period through to June 2021, in line with historic trends. Management continues to focus on optimal working capital management.

As an IT-focused business, Mustek says the group is ideally placed in an industry likely to benefit highly from the “new normal” that includes working from home and remote learning across basic education and higher education sectors.

“Our investments in new product lines such as networking equipment, sustainable energy and fibre are starting to contribute meaningfully to both revenue and profit. The growth in fibre-to-the-home is not only assisting our fibre sales, but also increasing the demand for new devices in order to fully benefit from the faster Internet speeds,” the company says.

The group will continue to look for opportunities to add additional products to its product offering in order to better utilise its infrastructure.

“We have seen a marked increase in the demand for our products since the level five lockdown and believe that the device market size is increasing, which bodes well for future replacement cycles. The increased device market size will also drive the demand for new infrastructure in order to support these devices and will accelerate the growth of the ICT industry over the short- and medium-term.”

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