Mustek still pays dividends

By Nicola Mawson for Mustek

Johannesburg, 28 Aug 2009

Despite profits being hit at hardware company Mustek, it has maintained last year's dividend of 10c in the year to June this year.

Its headline earnings per share dropped from 76.34c to 48.65c, and its net profit fell from R87 million to R52 million.

Mustek is reviewing its structure and operations to improve efficiency and profitability. It also aims to grow volumes, and sees the launch of Windows 7 as a key driver of its growth. It is also keeping an eye out for acquisitions.

In addition, the company believes the current corporate trend of not replacing aging hardware, but rather upgrading memory and hard drives, will not continue indefinitely. “We perceive the current South African installed base of corporate hardware to be at its upgrade limit and due for replacement,” says Mustek.

The company points out that Windows XP is an eight-year-old operating system and will not be upgraded to handle incoming technologies.

New software

One of the biggest events this year will be the launch of Windows 7, Microsoft's Vista replacement. “Its consumer launch, in October, should be a high point for our industry, with Windows 7 expected to drive sales of hardware capable of operating its new features such as multi-touch and home networking,” the company notes.

Corporate sales are expected to be bolstered by the release, also in October, of new versions of Server 2008 and Exchange 2010, which are being designed to take advantage of new Windows 7 capabilities.

Mustek is also excited at the thought of the “imminent” launch of Microsoft Office 2010. “This compelling upgrade, available in native 64-bit, will probably accelerate the move to 64-bit computing,” the hardware company notes.

In addition, as memory prices are dropping, the company expects to “benefit from businesses and consumers upgrading to hardware able to handle more than the current 4GB RAM limitation”.

Mustek is also working with its partners to develop products that can take advantage of Windows 7's home networking feature. “It is logical for a consumer to want to play a movie stored on his computer directly on his large screen TV, without having to solve myriad networking issues,” it explains.

Along with falling memory prices, the cost of solid state hard drives is expected to come down. “By 2011, solid state drives will be commonplace in notebooks,” Mustek says.

Flat turnover

Mustek says turnover increased marginally, by 2.1%, to R3.482 billion and its gross profit margin was stable at 16.2%. The company, however, was hit by foreign exchange losses of R67.8 million, up from the previous year's loss of R18.5 million.

It explains that, due to accounting rules, it has to value accounts payable at the closing currency price and - as the rand was volatile during the year - this resulted in the currency losses. Stripping out the foreign exchange losses, the company's operating expenses would have come down 0.8%.

However, it has identified various inefficiencies and duplication of functions after conducting a review of the business. Mustek says it has implemented corrective action and expects to reap benefits in the future. The company has already improved inventory management, reduced working capital requirements, and eliminated inefficiencies and duplication.

Subsidiary Comztek's results have been negatively affected by the impairment of some loans, and associate business Rectron's contribution to profit improved due to better gross and operating margins.

The company says bank balances and cash remained strong at R338.6 million, although slightly down from last year's R420.1 million.