Mustek's interim earnings plunge 74% amid Novus Holdings takeover bid

Mustek, a JSE-listed ICT distributor that is subject to a takeover offer from Novus Holdings, reported a whopping 74% steep decline in its interim earnings, amid challenging global and local economic conditions.

Headline earnings per share for the six months ended December 31, 2024 plunged 74.31% to 23.47 cents from the prior year. Basic earnings per share followed a similar trend, falling 74.72% to 23.01c. No interim dividend was declared.

"The group's performance remained under pressure," Mustek CEO Hein Engelbrecht said on Thursday. "This reflected the ongoing challenges posed by global and local economic conditions. These included persistent inflation, elevated interest rates, sluggish economic growth, and fluctuating consumer and investor confidence, both in South Africa and internationally.”

Mustek also attributed the decline in its interims to selective deal-making. Engelbrecht also admitted some of the challenges were self-inflicted.

In Covid-19 the firm did "exceptionally well" . The following year Mustek also got a boost from loadshedding challenges in South Africa as its power division, Mustek Energy leveraged its expertise in inverters, batteries, and renewable energy solutions to bolster profits.

However, he added, "We made some mistakes. We were overstocked and we are working hard to rectify that."

Revenue for the period was R3.66 billion, down 14.1%. The group’s two largest segments, Mustek and Rectron, saw revenue declines of 9.1% and 26.0%, respectively, while its IT training arm, Mecer Inter-Ed, recorded a slight dip to R43.4 million from R46.2m.

Despite the revenue drop, Mustek managed to improve its gross profit margin to 13.8% from 13.4%, citing a “more favourable product mix.” Operating profit, however, took a significant hit, falling 47.1% to R95.58m.

On a brighter note, Mustek made strides in managing its finances. Cash generated from operations soared to R698.2m, a stark contrast to the R125.5m outflow in the prior period, helping slash the overdraft from R600m at June 30,  2024 to just R0.6m by December 31, 2024. Net working capital also shrank by R637m, driven by a 14% reduction in inventory (from R2.35bn to R2bn) and receivables (from R1.58bn to R1.37bn).

“We are encouraged by the improvement in working capital since June 30, 2024, net finance costs and cash generated from operations, which is a result of our efforts to enhance liquidity and strengthen our financial position despite the difficult trading conditions,” the company said in its results.

Mustek’s balance sheet showed resilience, with net asset value per share rising 3.74% to 2 826.95 cents. Net finance costs dropped 23.2% to R83.3m, aided by lower working capital needs and interest rate cuts in the second quarter. However, forex losses of R28.3m, mostly unrealised, weighed on results, though Mustek noted potential reversal as the rand has strengthened against the dollar since December.

In a strategic move, Mustek acquired a 70% stake in Cyberantix, a cybersecurity services firm, for R8m on September 12, 2024.The company said, “Cyberantix has positively contributed to the Group’s results for the period ended December 31, 2024.”

Looking forward, Mustek said it was cautiously optimistic of improved conditions in the future.

"Specifically, a return to normal replacement cycles, increased spend on cybersecurity and growth in infrastructure and devices to derive tangible benefit from AI,” the company said, referencing industry forecasts of IT sector growth in 2025 driven by AI and cybersecurity demand. 

Novus deal

Meanwhile, a mandatory offer from Novus, which acquired over 35% of Mustek’s shares, was announced on November 15, 2024, with the printing and packaging company offering R13 cash for each Mustek share, or R7 cash per Mustek share and one Novus share per Mustek share, or two Novus shares per Mustek share.

Shabana Aboo Baker, the financial director of Mustek, explained, "We are currently in the process of getting the necessary approvals from all the regulators that are in play."

"The Competition Commission has referred the transaction to the Competition Tribunal with a recommendation to approve the transaction. We have also had to submit filings, competition filings, to a number of jurisdictions within Africa. We've already gotten approvals from Kenya, Botswana and Namibia, so subject to all the regulatory approvals coming through, being the main ones being the JSE and the Takeover Regulation Panel (TRP) with a joint circular due by March 14, 2025," she said.

Last month the TRP has ruled that the DK Trust acted in concert with Novus in its mandatory offer for computer and technology distribution company Mustek. 

Mustek explained that this will not affect the deal, "The offer from Novus is a mandatory one.  The TRP’s mandate is to ensure that’s shareholders receive an offer.  They cannot block it.  All they can do is make sure that the documents are in order.  Classifying a person as a concert has no bearing on the offer."

By 2.17pm on the JSE, Mustek's share was 1.38% lower at R15.

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