Technology firm Mustek has reported headline earnings from continuing operations of R54,6m for the six months to 31 December 2015, a slight decline from the R58,2m reported in the same period a year ago.

This came on the back of revenue of R2,5bn, up by more than 10% from R2,2bn last year.

Headline earnings per share, a number closely watched by South African investors, fell by 3%.

Gross profit was 14,4%, down from 14,5% previously, but well up from the 13,2% reported for the year ending 30 June 2015.

“The weaker rand/dollar exchange rate impacted the rand value of our inventory and management is committed to reduce the inventory days in the period to June 2016,” the company said.

“Working capital management continues to be a driver of profitability and is currently receiving management’s full attention.”

It said a “more conservative” foreign exchange hedging policy is “working well” considering the sharp depreciation of the rand in the reporting period.

The company used R418,7m in cash in operations (up sharply from R43m before) due to higher forecasted revenue growth and the weaker exchange rate that resulted in higher inventory values.

“This was funded by bank overdraft facilities and is expected to reverse in the period through to June 2016, in line with historic trends,” it said.

Net finance costs increased from R23,1m to R40,1m due to higher inventory levels at both Mustek and subsidiary Rectron.

“The weaker exchange rate resulted in higher inventory values and an increase in bank overdrafts,” it said. “The excess inventory will be largely disposed by the end of March 2016.”

The sharp fall in the value of the rand against the dollar in December “resulted in an immediate revaluation of dollar-denominated accounts payable and a corresponding foreign exchange loss”, Mustek said.

“[Financial reporting standards do] not allow the revaluation of inventory, which means that inventory is carried at a significantly lower value than its replacement value. This creates opportunities for the group to earn higher gross profit margins during the second half of the financial year.”

Mustek said it will continue to refine its broad-based ICT distributor status.

“We expect to see growing contributions to both revenue and profit going forward in our Microsoft volume licensing offering, Huawei Enterprise Solutions division, sustainable energy division, CCTV surveillance division, and cabling products and services.”

It said there are also strong growth opportunities in supplying e-learning solutions to the public education sector.

“Mustek has over the last few years been investing substantially in this particular market vertical and we believe that we are well positioned to grow our market share over the next three to five years. The amount of interest shown by various provinces during the last few months is encouraging.”