Mustek has reported a 5.7% increase in full-year headline earnings per share and an impressive 30.7% improvement in net cash generated from operations, though slow spending by government has put pressure on the top line, it said on Tuesday.

Revenue from continuing operations was down marginally (-0.8%) at R5.2bn. Profit declined from R78.9m to R73.7m.

“The major reason for the slowdown in growth was the reduction in spending from the government sector,” Mustek, which is led by CEO David Kan, said in notes accompanying the financial results for the year ended 30 June 2017.

The gross profit percentage from continuing operations was marginally down from 12.9% to 12.6%, predominantly as a result of product mix, the drive to reduce inventory levels and an increase in inventory provisions, the company said.

“Although the gross profit percentages achieved by products such as Huawei Enterprise Solutions and Microsoft volume licensing are lower, their contributions to profit are expected to continue growing,” it said.

The company’s currency hedging policy proved “effective”, with foreign exchange losses from continuing operations of R500 000 compared to R11.8m in the comparative period.

Distribution, administrative and other operating expenses from continuing operations increased by just 1.5%, despite a once-off R3.7m spent on retrenchment costs.

Working capital management

Improvement in working capital levels contributed to cash generated from operations of R228.8m, up from R175m previously. “Management continues to focus on optimal working capital management as it remains a driver of profitability in our industry,” Mustek said.

During the financial year, Mustek bought back 15m shares for R69m. It said it will continue buying back shares, where it makes sense to do so, until at least June 2018.

Looking ahead, Mustek said that although economic and market conditions will “remain difficult”, net finance costs should reduce in line with lower inventory levels at both Mustek and subsidiary Rectron. Lower inventory levels should also have a positive effect on gross profit margins, the company said.