Foreign exchange losses are set to depress Mustek’s earnings in the six months to 31 December 2011, despite a more than 20% increase in sales in the period compared to a year ago.

The JSE-listed technology distributor expects headline earnings per share to be between 55% and 65% lower than headline earnings of 36,2c/share a year earlier. Basic earnings per share is expected to be between 35% and 45% lower.

In the six-month period, turnover increased by 20,9% to nearly R2bn (R1,6bn previously) and gross profit margin was 14,7%, up from 14,4% previously.

Operating profit, however, will be depressed because of R62,9m related to “realised and unrealised foreign exchange losses”, compared to forex profits of R14,7m a year ago.

“A significant portion of these losses will be recovered when the related inventory is sold and by settling certain foreign creditors at lower levels than the R8,10 used at 31 December 2011 to revalue foreign creditors,” Mustek says in a statement to shareholders.

Mustek uses the rand-dollar spot rate at the beginning of each month to determine its selling prices, with adjustments made during the month should the exchange rate change substantially. “As a result of the sharp and sudden depreciation of the rand against the US dollar during September 2011, a substantial amount of inventory is accounted for at lower levels compared to where the rand has depreciated to.”

It says accounting standards do not allow the fair valuation of inventory, but require the corresponding foreign accounts payable to be stated at the closing spot rate (R8,10/$). “As long as this is the case and the rand remains as volatile as it currently is, reported earnings will remain in line with the volatilities of the rand.”

Mustek’s share price was trading down 4,4% shortly after it updated shareholders about its expected results, which it will publish at the end of this month. — Staff reporter, TechCentral