JSE-listed technology distributor Mustek has reported a 58.8% slump in headline earnings per share in its most recent reporting period.

For the six months ended 31 December 2023, the group said operating profit declined by 25.3% to R180.6-million, while revenue declined by 13% to R4.3-billion.

Mustek faced a sharp slowdown (-55%) in demand for its green energy products, which had been a key driver of revenue growth in the comparative period a year earlier. Gross profit on green energy products reduced by about R100-million year on year, contributing to the pressure on the bottom line.

“The six months ended 31 December 2023 were marked by a decline in the group’s performance, reflecting the adverse impact of the prevailing local and global economic challenges, such as high inflation, high interest rates, and low consumer and investor confidence,” it said.

Its two largest segments, Mustek and Rectron, saw revenue declines of 15% and 9.9%, respectively. IT training company Mecer Inter-Ed also experienced a slight decline in revenue due to “tougher market conditions”.

The group reported a R10.6-million foreign exchange profit in the period, compared to a forex loss a year ago of R62.9-million.

But higher interest rates resulted in a 50.5% increase in finance costs to R115.1-million (31 December 2022: R76.5-million), with the average prime interest rate 24% higher in this period compared to a year ago.

Borrowings

“The average borrowing rate applicable to the group’s US dollar-based borrowings nearly doubled to 5.3% from 2.9% in the comparative period. Approximately 60% of the group’s available working capital facilities are US dollar based and the fluctuations of the exchange rate has also played a role in the increased trade finance costs,” it said.

Inventory reduced from R2.8-billion at year-end to R2.4-billion, though this remains “elevated”.

“At the end of the period, trade receivables were higher than anticipated and slightly higher than as at 30 June 2023. The reason for the longer debtors’ days of 72 days, which exceeded the group’s average of 55 days, was due to project-based deals that were delayed,” Mustek explained.

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Net working capital as at 31 December 2023 increased compared to 30 June 2023 due to the reduction of trade payables of R677-million, which included interest-bearing trade finance facilities.

“One of the group’s strategic objectives for the current financial year is working capital management and optimisation of cash flows to ensure efficient utilisation of resources, improved financial flexibility and finance costs, as well as sustained growth.”

Mustek expects the arrival of AI PCs in 2024 could boost sales

It said R125.5-million cash outflow from operations (31 December 2022: R124.7 million outflow) was mostly from the reduction of trade payables, which included trade facilities. This was financed by bank overdraft facilities and is anticipated to revert in the period to June 2024, in line with historic patterns, it said.

Looking at its immediate prospects, Mustek said one potential bright area is for an uptick in PC sales following the slump that came after the Covid-induced boom in demand for computers and peripherals.

“We are cautiously optimistic that the AI PC will bring a new round of potential growth in the PC market,” it said, referring to demand for computers with processors capable of on-device generative artificial intelligence tasks.

“Mustek will continue to drive market share from its broad IT stack such as network and infrastructure and ensure efficiency in its lean operations, maintain healthy cash generation, and working capital reduction,” it said.

“The recent release of AI-capable systems by large OEMs (manufacturers), together with a strong focus from operating system providers in 2024, is likely to drive refreshed demand in the commercial sector.”