mustek annual report 2006 - sharedata online · mustek annual report 2006 1 group proﬁle mustek,...

Mustek a

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STRONG RELATIONSHIPS

Mission Statement

Mustek assembles, markets and distributes ICT

(Information Communications Technology)

products and services. Mustek provides

competitive, value-added services to our

customers and creates wealth for shareholders.

Mustek meets its objectives through strong relationships in the international ICT market,

and by continually nurturing the entrepreneurial spirit of our people and

business associates.

CONTENTS

Mission Statement Corporate Vision 1 Group Profile 1 Core Values 3 Chairman’s Report 7 Chief Executive Officer’s Report 14 Six-year Financial Review 15 Environmental Sustainability 17 Social Responsibility 21 Group Structure 22 Board of Directors 23 Annual Financ ial Statements 105 Notice of the Annual General Meeting 109 Form of Proxy

Corporate Vision

>> Leadership of the Mecer, Rectron, Comztek and Brother brands in our chosen markets.

>> Increasing market share while maintaining margins.

>> Maintaining our leadership position by introducing technology advances to the market place ahead of other suppliers.

>> Superior procurement, manufacturing and distribution capabilities, ensuring that high quality and competitively priced products and services are delivered to our customers.

>> Equity in the workplace through focused empowerment initiatives.

>> Growth and value through targeted initiatives at larger, high-value customers.

This annual report is also available in PDF which can be downloaded from our website: www.mustek.co.za

Mustek annual report 2006

1

Group Profile

Mustek, from its corporate headquarters in Midrand, South Africa, oversees the activities of its business units operating in its chosen markets in Africa, South America and Australia.

The Group invests heavily in its core resource – competent people – by pursuing a comprehensive programme of training and people development. The tenets of the Group’s philosophy embrace transparency of operation, imaginative application of technology and accountability to all stakeholders.

Mustek’s ongoing success is attributable to a clear and forward-looking strategic vision, responsible management, the technical capabilities of a committed owner-workforce, superior products, service levels and a strong asset base. The Group aims at continuing sustainable headline earnings growth and creating long-term shareholder value by remaining focused on its core businesses – the manufacturing and selling of personal computers under its Mecer brand, and the distribution of computer components through its Rectron brand. These businesses are supported by associated companies within Mustek that provide complementary ICT services and products.

‘

Core Values

>> Safeguard the integrity and quality of our technological standards.

>> Implement the highest business ethics and corporate governance, striving for greater trust from all our stakeholders.

>> Our people are our greatest asset.

>> The development of a harmonious and prosperous South African society.

>> Faith and growth in the African continent and its people.

‘

Superior procurement,

manufacturing and distribution

capabilities, ensuring that high

quality and competitively priced

products and services are delivered

to our customers.

‘

2

3


OVERVIEW

South Africa’s economy continued its seemingly

unstoppable climb in the financial year under

review, but growing clouds on the horizons of

world politics and economics may be signalling a

sea change.

The Middle East remains a chronic hotbed of

tension, with the recent Israel – Lebanon flare-

up the worst in years, while deteriorating

international relations with emerging nuclear

powers such as Iran and North Korea threaten to

destabilise the fragile global balance of power

between nations.

As national economies around the world have

expanded, with China and India in particular

roaring ahead, global demand for energy has

become insatiable.

Oil prices have consequently reached their

highest real levels in decades, with the world

teetering on the edge of a new oil crisis for some

years now. A full-blown oil crisis such as in the

early 1970s will surely peg back economic

growth while probably also fuelling higher

inflation.

In South Africa, sharply increased trade deficit

figures in May and June 2006 caught most

economists by surprise, triggering an interest

rate rise and a weakening of the Rand exchange

rate. We will no doubt follow these trends closely

in the year ahead, as the nature of our business,

with its significant reliance on imported

components, makes Mustek vulnerable to sudden

exchange rate shifts.

Although we still believe that the South African

economy will continue growing, its pace may

slow, with consumer spending easing back due

to higher interest rates and transport costs.

WORLD CUP 2010

On the upside, a key South Africa’s economic

dynamic is different to every other nation at this

time – the 2010 World Cup Soccer tournament

will be played here. World Cup 2010 is sparking

off a massive programme of public-private

spending on national infrastructure, and serious

government-level heart-searching on social

issues such as crime. These factors will to a

large extent shape our country’s economic and

developmental landscape over the next four

years, and could possibly even counterbalance

the negative international picture. Certainly,

from Mustek’s point of view, we trust this will be

the case.

CHANGES TO THE MUSTEK BOARD

In June 2006 non-executive director Ms Sindi

Mabaso resigned from the Mustek Board. Ms

Mabaso was a valued member of our board, but

we respect that her accepting a senior partner

position in a major auditing firm meant her

having to relinquish all other company

directorships.

We wish Ms Mabaso well in her future endeavours

and are confident that she still has much to

contribute to the growing commercial influence

of South Africa’s women and to the chartered

accountancy profession.

Chairman’s Report

Chairman’s Report(continued)

4


ICT CHARTER

The ICT (Information and Communications

Technology) Charter, which in mid-2005 finally

reached final draft form after three gruelling

years of debate and redrafting, has been placed

on hold. The charter can only be implemented

when it has been aligned with the Department of

Trade and Industry’s (dti) Codes of Good Practice,

which are still being finalised.

Mustek expects to endorse and abide by the

parameters of the ICT Charter when it can be

formally adopted by industry.

SAFIKA HOLDINGS (PTY) LIMITED

In 2003 Safika Holdings (Pty) Limited (Safika)

agreed to purchase 25% of Mustek’s shareholding

for about R224 million in terms of a structured

deal.

At this time the funded period of this

empowerment deal is reaching the end of its

term and a compliance audit is underway. The

working relationship between Mustek and Safika

to date has been outstanding and we will make

an announcement regarding our ongoing

relationship into the future once the audit has

been completed.

BROTHER TRANSFORMS INTO BROTEK

In 1981 James Booysen founded Brother

Business Machines (Pty) Limited (Brother) in

South Africa, having secured the exclusive

distribution rights for the highly respected

Brother branded range of printers, fax machines,

multifunction centres, typewriters and

consumables for Southern Africa. In 1996 Mustek

purchased 70% of Brother’s shares and the

company joined the Mustek Group, with James

Booysen remaining as Brother’s managing

director and 30% shareholder.

Brother has continued to grow from strength to

strength, but in recent years James Booysen has

been planning to retire. In this financial period

– with the assistance of majority shareholder

Mustek – Booysen sold his 30% shareholding

to black-owned Puno Printing Solutions

Investments.

The decision was taken to rebrand the company

and it was renamed Brotek (Pty) Limited from

1 June 2006. Brotek’s new CEO is Munna Desai,

a veteran of nearly 30 years in the ICT industry.

I take this opportunity to heartily thank James

Booysen for his outstanding leadership and drive

over the years, and we all wish him a most

relaxing and fulfilling retirement.

HUMAN RESOURCES

Mustek’s relationship with its workforce has

generally been cordial and trouble-free, largely

due to the company’s open door policy when

employees feel the need to discuss problems or

issues.

Even so, during this financial year a human

resources issue arose that required the

empathetic intervention of a board member. The

consequent discussions resolved the situation to

the satisfaction of all involved parties, and

labour relations in Mustek returned to its usual

trouble-free status.

5


CONCLUSION

What should have been an exceptional year was

downgraded to a merely satisfactory one, as the

Rand tumbled against the USD in the last few

weeks of the financial year. In one stroke this

event removed a significant portion of our

anticipated profits.

Even so, from my perspective, this annual report

reveals an exceptionally well-managed company

in a tough industry, with trading conditions and

margins still prejudiced towards the imported

international brands rather than local

manufacturers.

Mustek remains a pioneer in South Africa ICT

market, and has a tested strategy of penetrating

deeper into Africa’s untapped markets as and

when the right conditions become apparent.

With experienced management at all levels, a

stable and competent workforce – and possibly

most important of all – a company culture that

respects the diversity of people and encourages

all to always do better than before, Mustek is

poised for the future.

As Africa and other undeveloped markets emerge

from behind the digital divide, Mustek is ideally

positioned to build upon the sturdy foundation it

has already put in place.

Yours sincerely

Vuli Cuba

Chairman

‘

Maintaining our leadership position

by introducing technology advances

to the market place ahead of other

suppliers.

6

7


HIGHLIGHTS

This financial year was in many ways similar to

the previous reporting period, with unit sales

climbing as South Africans took advantage of

historically low interest rates to spend on

consumer goods such as our PC hardware.

Up to mid-May 2006, Mustek was poised to

notch up another record year, but our profits

were knocked back by the Rand’s sudden and

sharp depreciation against the USD at the end of

the period.

Even though over R67 million was effectively

deleted from our bottom line in a matter of

weeks, Mustek still recorded a satisfactory profit

of R74,6 million.

Mustek remains positioned for sustainable

growth, as the long anticipated computerisation

of schools is still in its pilot phase, while the

home user market shows signs of responding

positively to falling broadband costs and new

technologies such as Voice Over Internet Protocol

(VOIP).

FINANCIAL HIGHLIGHTS

This was again a satisfactory year for the

Group, with revenue increasing by 8% from

R2,8 billion to over R3 billion. Gross profit

from continuing operations increased from

R471 million to R503 million, while gross margin

from continuing operations remained consistent

at 16,4%.

Revenue growth was mainly attributable to a

10% increase in unit sales, higher revenues

from our international operations and the

proportionate consolidation of Comztek for

the full 12-month period. The Group’s bank

balances and cash totalled a healthy

R477 million, with cash flow from operations

contributing R222 million.

An unexpected and steep drop in the Rand

during the six weeks prior to year-end impacted

heavily on operating profit margins, which

could only be partially compensated for by

the Group’s prudent policy of partly hedging

against currency volatility by way of forward

exchange contracts.

The effect was that Mecer’s accounts reflected

R41,3 million and Rectron R26,1 million in

unrealised foreign exchange losses on the

revaluation of accounts payable at year-end.

We expect to recover some of these unrealised

losses in the 2007 financial year through higher

selling prices and the Rand’s strengthening after

June 2006.

Accounting standards

This year Mustek reported in terms of the

incoming International Financial Reporting

Standards (“IFRS”) for the first time, with

comparative figures restated where necessary

for comparison purposes.

Dividends

Two dividends were declared during the period.

Chief Executive Officer’s Report

Chief Executive Officer’s Report(continued)

8


The first dividend of 35 cents per ordinary share

and the second of 25 cents totalled 60 cents per

share for the year – exactly the same amount

as the previous period. Headline earnings per

ordinary share fell from 89,46 cents to 44,15

cents and basic earnings per ordinary share

decreased from 79,25 cents to 58,00 cents.

WHAT CAN WE EXPECT IN THE NEXT

FEW YEARS?

Little has changed in the five-year outlook I

published in last year’s annual report. As stated

before, we are expecting wide-scale growth in

Africa’s ICT market, although this quickening is

happening slower than we anticipated.

In South Africa the potential market for PCs is

still largely untapped, with home users and the

education sector expected to provide the bulk of

future sales growth.

Telkom and certain other companies last

year launched “bundles” of ADSL services

packaged with Mecer PCs or notebooks. These

bundles varied from entry-level Mecer Celeron

PCs to top-end Pentium 4 PCs and Centrino

notebooks.

This offering proved popular and we expect to

see more large ICT companies coming to the

market with competing “bundles” of products

and services, which will certainly increase PC

sales to the home user market.

The education market is potentially massive and

government is clearly intent on computerising

its schools and tertiary education institutions.

Getting this huge undertaking off the ground,

however, has been slow and fragmented, with

pilot projects still underway around South Africa.

To date Mustek has been awarded a considerable

share of these pilot projects and, as South

Africa’s largest manufacturer and distributor of

locally branded PCs (Mecer), we anticipate

clinching a large slice of this market when the

major tenders are eventually tabled.

Two primary factors will drive the next immediate

stage of upgrading PCs and notebooks. The first

is the new generation of 64-bit computer chips

introduced by Intel, which considerably

outperform Intel’s previous generation of 32-bit

chips. These two chips, named Conroe for PCs

and Merom for the notebook version, introduce

a new, dual core architecture that recaptures

the performance lead for Intel in its perennial

“chip wars” with AMD.

The second is the imminent introduction of new

Microsoft operating systems, expected in late

2006 or early 2007.

The 64-bit Vista and Longhorn operating system

packages will replace the current 32-bit XP and

server platforms respectively. These 64-bit

platforms are notably faster than current 32-bit

applications, and will cause popular applications

to be rewritten for 64-bit technology.

These twin push-factors of upgraded processing

power and new operating systems will drive

organisations to replace their ICT infrastructure

in order to match their competitors.

9


Broadband

Broadband is not being adopted in South Africa

as quickly as we would have liked, mainly due to

a technical and financial constraints. On the

technical side, demand for ADSL is outstripping

the present capacity of service providers to

physically install it, especially if a particular

installation requires the upgrading of carrier

lines or local exchanges. We do however, expect

this situation to rectify itself in the near future.

On the financial side, many home users cannot

afford ADSL, which is comparatively more

expensive in South Africa than most developed

countries. In this last year ADSL prices began to

come down, and we expect that competition

from the SNO and other broadband technologies

will continue to drive ADSL prices down to levels

that home users can afford.

Telkom’s ADSL fixed line technology remains by

far the most used broadband technology in South

Africa, although it has three wireless broadband

competitors. Sentech’s MyWireless and WBS’s

iBurst remain concentrated on the major urban

centres, but MTN and Vodacom’s 3G products,

supported by their extensive GSM networks, are

fast gaining corporate user market share.

Intel’s Wi-Max, based on the IEEE 802.16

standard, is probably the next big thing in

broadband connectivity. Wi-Max will enable

wireless connectivity over large areas through

transmitter masts similar to those presently

used by MTN, Vodacom and Cell C.

In the next three years Intel intends merging

the current Wi-Fi and the incoming Wi-Max

standards in its new CPU (central processing

unit) “chips”, which will power both Windows

and Macintosh computers. These chips will

enable newer computers to connect to both local

and regional wireless networks, which should

revolutionise always-on connectivity. This would

be a positive development for Mustek, as

notebook users would be further compelled to

replace their hardware.

LOWERING THE COST OF COMPUTERS AND

SOFTWARE

Several international initiatives are underway to

sharply lower the price of computing and getting

connected for people in the lower income groups

in the world’s developing nations.

One laptop per child

The first – and certainly the most cost-effective

if successful – is renowned ICT guru Professor

Nicholas Negroponte’s non-profit “one laptop

per child” project, which has designed and is

raising funding for a robust and basic laptop for

distribution to poor communities for less than

USD100 per laptop.

We applaud Professor Negroponte for launching

this noble project, which potentially could

introduce millions of people – who otherwise

would have no opportunity – to the digital worlds

of education and commerce.


10


Mustek itself isn’t geared to get involved in this

project at this time, though if approached we

would certainly consider it. If Negroponte’s “one

laptop per child” project succeeds, even partially,

it will bring many disadvantaged people out of

digital darkness into the world of computing and

connectivity.

Affordable personal computer

A second project, in which Mustek is the only

ICT company in South Africa currently

participating, is Intel’s Affordable Personal

Computer (APC) project.

The APC will be an entry-level PC costing

significantly less than the cheapest current

entry-level Intel Celeron or AMD Sempron

equipped PC, and will feature a low power, low

heat and fanless CPU.

The APC will only draw 65 watts of electric

current as opposed to the 200 watts of current

desktop PCs. We believe it to be the ideal PC for

the education sector as it is significantly cheaper

than current entry-level models – and of key

importance – its low power draw and not having

a fan continuously pushing out heat means that

it is well suited to classrooms, where 30+

conventional and fanned PCs could cause

overheating problems for both scholars and

machines.

Microsoft FlexGo

Microsoft is introducing a new package that

bundles PCs and software into a pay-as-you-go

scheme similar to that of many African cellphone

users.

Aimed at developing markets, where income is

generally low and can be erratic, FlexGo will let

users take delivery of PCs and software which

they can then activate through vouchers

purchased from authorised vendors, just as

mobile users currently finance the ongoing use

of their cellphones.

Although negotiations with Microsoft are still

underway at the time of writing this report, in

essence this model offers several advantages

and could considerably grow the home user PC

market.

In summary, the targeted users are already

familiar with the pay-as-you-go model; they can

get a full featured PC with current Microsoft

software; and they can pay for the PC package

when they use it, which is intrinsically fair.

At the end of the day FlexGo will create an

entirely new ICT market niche for PCs and

Microsoft products.

Voice Over Internet Protocol (VOIP)

Voice Over Internet Protocol (VOIP) means that

telephone calls can be routed via the internet

rather than through a conventional fixed

line or cellphone. The primary benefit of

VOIP is cost savings, particularly on long-distance

calls or calls to cellphones. Another key advantage

is that PC to PC calls can be made at minimal

cost, but generally with enhanced quality.

11


At this stage VOIP telephony appears to be the

next wave in voice communication, particularly

as broadband becomes more widely used.

BEE AND TRANSFORMATION

Mustek is committed to the transformation of

South Africa, and is equally committed to

furthering the cause of black economic empower-

ment (BEE) where it can. Our current BEE

participation is channelled through three

initiatives.

The first initiative is a 25% shareholding in

Mustek owned by Safika Holdings. The second

initiative was taken in this year, when a 30%

shareholding in Brotek, a Mustek subsidiary, was

sold to black-owned Puno Printing Solutions

Investments. These transactions are commented

on by the Chairman in his report, so I won’t

repeat it here.

Our third initiative, which is ongoing and still

expanding, is Mustek’s support for its growing

network of 3 000+ mostly BEE and SMME

dealers. The Group actively seeks out BEE

enterprises to service its supply contracts and, if

required, bridges the experience gap by

furnishing management, marketing, technical or

training support.

INTERNATIONAL MARKETS

Africa

In this period Mustek bought out the remaining

49% shareholding in Mecer East Africa and

Mecer EPZ, its two East African companies.

These companies are now 100%-owned

subsidiaries of the Group.

Kenya has announced a project worth R1,8 billion

to computerise its schools, but at this time

formal tenders have not yet been issued.

Although Mustek’s African operations remain

small contributors to Group revenue; these are

strategically placed to take advantage of the

immense potential for future growth in PC sales

that Africa offers.

NEPAD

In partnership with Microsoft and Oracle, Mustek

has invested funds and expertise into NEPAD’s

e-Schools Initiative. To date we have supplied

computer hardware to 21 pilot schools in nine

African countries.

Brazil

In this period Mecer Brazil’s revenue grew by

45%, from R80 million to R116 million.

This operation however, recorded a loss of

R12,2 million, primarily due to low margins

and a lack of manufacturing skills that are still

being developed.

Although we are building market share and

learning the South American market, Mustek will

continue assessing the long-term sustainability

of our operations there. The board will, in due

course, take a decision on the future of our

Brazilian presence.


12


REVIEW OF OPERATIONS

Mecer

With 98% brand recognition Mecer

continues to be one of South Africa’s most

well-known local PC and notebook brands.

Unit sales grew 10% and margins were largely

maintained, but Mecer recorded an unrealised

R43,1 million foreign exchange loss in the last

weeks of the period due to a sudden decline of

the Rand against the USD. Mecer expects to

recover a portion of this unrealised book loss in

the 2007 financial year.

Mecer and Rectron have also signed agency

agreements to distribute the Toshiba range of

notebooks.

Rectron

Africa’s biggest supplier of ICT components

and peripherals.

Although Rectron’s revenue also grew healthily

and its results ended in the black, it was also

impacted by the Rand’s sharp decline against

the USD, having to account for R26,1 million on

the revaluation of accounts payable.

The decision was also taken to close down

Rectron’s loss-making United Kingdom operation,

resulting in a loss of R24 million and a profit on

discontinuance of R19,1 million. Rectron realised

proceeds of R95 million on the sale of its

Johannesburg and Durban buildings.

Brotek (Pty) Limited (Brother)

Supplying ICT equipment to public sector

organisations.

Brother again recorded a pleasing performance

for the year. Managing Director James Booysen

duly sold his 30% shareholding to black-owned

Puno Printing Solutions Investments, and retired

from the company he founded in 1981 and

successfully managed for so many years.

The decision was taken to rebrand Brother, and

from 1 June 2006 it became Brotek (Pty)

Limited. Brotek’s new CEO is Munna Desai, a

veteran of nearly 30 years in the ICT industry.

Comztek

An ICT systems and networking distributor,

Comztek has grown considerably since

joining the Mustek Group in 1999.

This was the first financial year in which

Comztek’s results were proportionally

consolidated for the full year. In this period,

Comztek substantially improved its performance,

and is well-positioned to repeat this feat in the

2007 financial year.

13


Conclusion

The nature of our business is such that Mustek

will always be challenged by the Rand’s exchange

rate against the USD. In recent years the Rand

strengthened and appeared to stabilise within

a broad range, but its recent unexpected

depreciation was damaging to our business.

This is a reality that we will probably never

be able to fully control, but is factored into

our risk management strategy.

With strong brands and well-managed

subsidiaries, Mustek is ready to tap into the

massive demand for hardware that is inevitable

with digital e-schooling and e-government on its

way. New Intel processors and the arrival of

Microsoft’s Vista will add impetus, with private

and public sector companies upgrading to 64-bit

systems from late 2007.

Mustek is much more than strong brands, new

technologies and clever management. To

perform we are reliant on the day-to-day

hard and productive work of our employees,

who constantly amaze me with their ideas, zeal

and loyalty.

To all Mustek people – shareholders, employees,

dealers, suppliers and end-users – thank you for

another remarkable year at the helm of

Mustek.

Yours sincerely

David Kan

Chief Executive Officer

14


2006R000

Restated2005R000

2004R000

2003R000

2002R000

2001R000

SUMMARISED GROUP INCOME STATEMENTS (continued and discontinued operations)Revenue 3 200 206 2 942 244 2 683 978 2 975 517 2 825 776 2 127 241 Cost of sales (2 692 283) (2 469 795) (2 201 310) (2 518 640) (2 346 117) (1 791 205)

Gross profit 507 923 472 449 482 668 456 877 479 659 336 036 Distribution, administrative and other operating expenses (385 267) (299 335) (345 899) (222 398) (254 849) (185 100)

EBITDA 122 656 173 114 136 769 234 479 224 810 150 936

Headline profit 47 058 92 796 71 793 112 005 87 335 56 047

SUMMARISED GROUP BALANCE SHEETSAssets 1 889 569 1 696 305 1 437 392 1 401 518 1 215 702 996 472

Property, plant and equipment 105 429 144 946 61 511 40 000 39 706 39 252 Intangible assets 11 735 3 598 4 277 11 537 11 218 18 753 Investments and loans 56 531 48 867 73 865 89 862 123 954 101 867 Non-current trade and other receivables 22 116 13 233 — — — — Deferred tax assets 30 330 20 202 29 528 6 851 10 800 17 243 Current assets 1 663 428 1 465 459 1 268 211 1 253 268 1 030 024 819 357

Equity and liabilities 1 889 569 1 696 305 1 437 392 1 401 518 1 215 702 996 472

Equity attributable to equity holders of the parent 505 823 500 283 457 983 457 056 363 260 327 053 Minority interest 69 594 80 615 66 871 65 769 52 214 38 914 Long-term borrowings 115 805 245 330 229 130 207 685 167 340 9 857 Deferred tax liabilities 808 469 — — 102 728 Current liabilities 1 197 539 869 608 683 408 671 008 632 786 619 920

KEY BALANCE SHEET FIGURESTotal assets (R’000) 1 889 569 1 696 305 1 437 392 1 401 518 1 215 702 996 472 Ordinary shareholders’ equity (R’000) 505 823 500 283 457 983 457 056 363 260 327 053 Gearing ratio — — — — — 23%Return on ordinary shareholders’ equity 12,2% 16,4% 10,9% 20,1% 21,3% 5,7%Net asset value per share (cents) 471 478 451 469 400 327

MARKET INFORMATION AT 30 JUNEOrdinary shares in issue 107 514 661 104 643 639 101 566 618 97 433 818 90 912 333 100 114 533 Weighted average number of ordinary shares 106 595 794 103 723 755 100 010 307 94 396 031 98 257 129 100 114 533 Headline earnings per share (cents) 44,1 89,5 71,8 118,7 88,9 56,0 Market price per share (cents)– year-end 1 025 1 010 750 520 361 185 – highest 1 200 1 060 831 550 385 310 – lowest 871 680 500 256 160 90 Number of transactions 7 874 4 157 5 542 2 515 2 151 3 174 Number of shares traded 71 471 937 44 112 050 64 386 080 50 436 867 38 674 395 47 978 098 Value of shares traded (R) 730 750 291 384 317 153 464 736 151 228 636 343 108 566 468 85 337 335 Percentage of issued shares traded 67% 43% 64% 53% 39% 48%

LIQUIDITY AND LEVERAGEInterest cover (times) 1,8 2,5 2,5 4,3 5,0 3,5Net cash from (used in) operating activities 98 754 8 615 (9 424) 166 550 120 940 148 575 Current ratio (times) 1,4 1,7 1,9 1,9 1,6 1,3

PROFITABILITYOperating margin 3,8% 5,9% 5,1% 7,9% 8,0% 7,1%

EMPLOYEESNumber of employees 1 205 1 162 1 058 937 887 946

Glossary EBITDA – Earnings before interest, tax, depreciation, amortisationCurrent ratio – current assets divided by current liabilitiesGearing ratio – ratio of net interest bearing borrowings to ordinary shareholders’ equityInterest cover – EBITDA plus income from investments divided by interest paidNet asset value (ordinary shareholders’ equity) – total assets less total liabilitiesOperating margin – EBITDA as a percentage of revenueReturn on ordinary shareholders’ equity – net profit for the year as a percentage of ordinary shareholders’ equity (net assets)

Six-year Financial Review

15


ISO 14001 (ENVIRONMENTAL

MANAGEMENT)

Mustek achieved full compliance with the revised

international ISO 14001 standards (environmental

management), which were released in 2005.

ENVIRONMENTAL IMPROVEMENT

To date Mustek has embarked on 13 ISO 14001

projects, of which three were finalised and one

new project initiated during this reporting

period.

Improvements were made in the following

aspects:

>> Reduction in electricity consumption

>> Waste management

>> Environmental contributions from tenants

and contractors.

MATERIALS

Lead, mercury, cadmium, and polybrominated

flame retardants are all persistent, bio

accumulative toxins that can cause

environmental and health risks when computers

are manufactured, incinerated, landfilled, or

melted down during recycling.

Several manufacturers now offer computer

technology that doesn’t include these hazardous

substances. Mustek is continuing to explore ways

and means of amending its technologies to also

exclude these substances. As a consequence

most Mustek-supplied motherboards and LCD

monitors are becoming compliant with the RoHS,

(Restriction of hazardous substances) require-

ments which took effect from 1 July 2006.

ENERGY

Mustek uses electricity supplied by local

metropolitan providers. The company is not a

significant user as our assembly operations do

not require heavy machinery. We produced 10%

more PCs this year and our electricity usage

increased by 12%.

WATER

Water continues to be obtained from local

municipal suppliers and is only used for domestic

consumption such as cleaning and drinking.

Water is not required in Mustek’s production

processes. Employees are routinely informed of

the importance of saving water during their

induction training. Our usage for the year June

2005 to July 2006 was recorded at approximately

15 000 kilolitres.

BIODIVERSITY

Mustek reduced the volumes of hazardous

chemical cleaning materials used in cleaning

operations by introducing steam cleaning

alternatives. The Group utilises organic pesticides

and fertilisers rather than artificial or hazardous

chemicals in maintaining its green areas.

EMISSIONS, EFFLUENT AND WASTE

Group generation of hazardous waste remained

minimal, and was limited to fluorescent lighting

tubes, which contain traces of mercury, and

hydrocarbons.

Strict control was kept over Mustek’s hazardous

waste storage facilities, which were upgraded in

this period.

Environmental Sustainability

Environmental Sustainability(continued)

16


Since November 2005 Mecer Gauteng’s e-waste

has been recycled by a Port Elizabeth-based

contractor. Mecer’s KwaZulu-Natal branch now

passes its waste onto “The Westmead Community

Recycling Project”, a community upliftment and

empowerment project which earns money from

recycled waste.

The bulk of Mustek’s waste is discarded packaging

in the form of cardboard, paper and plastic. In

the period July 2005 to June 2006 Mustek’s

operations recycled about 200 tons of cardboard/

paper (an increase of 37% over last year)

and 20 tons of plastic. This higher volume

of waste was generated by increased PC

production.

Waste produced by Mustek is categorised as

follows:

>> Recyclable waste – Paper, pallets, cans,

plastic and cardboard packaging

>> Non-recyclable – Cleaning chemicals,

polystyrene, kitchen waste

>> Non-recyclable hazardous waste –

Hydrocarbon waste, fluorescent light bulbs

>> Recyclable computer waste – Computer

components, cathode ray tubes

>> Hazardous computer waste – Toners, NiCad

UPSs and batteries

CONTRACTORS

Mustek complies with the revised ISO 14001

standards released in 2005, which places

increased emphasis on contractor awareness.

The Group has accordingly disseminated

its environmental policy to all contractors,

whose environment-related responsibilities are

controlled through our contracts with them.

Current on-site contractors include Nakasani

(cleaning) and Axon (security).

COMPLIANCE WITH ENVIRONMENTAL

LEGISLATION

Mustek rigorously complies with environmental

legislation and retains a service provider to

provide timely warning of envisaged changes in

environmental legislation. Amendments to

environmental legislation received during the

period of review did not significantly impact on

Mustek’s scope of activities, although these

updates did reflect increasing concern regarding

the management of e-waste.

No compliance problems were experienced

during the period of review and an SABS

legal compliance audit is scheduled for the

coming year.

TRANSPORT

Traffic flow during peak times in and out of

Mustek’s Midrand corporate headquarters was

markedly improved by placing two Outsurance-

sponsored “points-people” at two busy

intersections in the vicinity. This action has had

the effect of reducing fuel consumption and

vehicle related emissions caused by Mustek’s

operations.

17


Social Responsibility

This section of the Mustek annual report is

structured according to the requirements

of the Global Reporting Initiative (GRI),

which was implemented in 2002.

LABOUR PRACTICES AND DECENT WORK

Labour and management relations

Mustek currently employs approximately 650

people in South Africa. The Group’s “open door”

policy towards its employees, a feature since its

founding in 1987, has kept industrial strife to a

minimum.

Employees are aware that, should they need to

discuss an issue or are aggrieved for whatever

reason, they can immediately approach Human

Resources (HR) to find a solution rather than

going through a formal procedure. As a result

virtually all potential employee problems are

resolved before these can evolve into more

serious issues.

Standard grievance and disciplinary procedures

are available to all employees through the

company intranet, but in practice these are

seldom used. In this period no grievances and

only a handful of formal disciplinary hearings

were conducted.

Unlike many other large companies, management

and staff do not perceive themselves to be on

opposite “sides”, which is reflected in a

team-based rather than hierarchical working

culture.

Health and safety

Mustek conforms to all legislation and conducts

its business within the parameters of a group

Safety, Health, Environmental and Quality

(SHEQ) manual. Emergency and disaster plans

have been prepared for all areas and our

workforce is trained in their use.

Health and safety in Mustek is driven by staff

volunteers, who are elected from all company

units onto health and safety committees. These

committees meet quarterly to assess company

performance in health, safety and related issues,

and to suggest how relevant procedures can

be improved.

No reportable SHEQ incidents occurred in

this year.

Training and education

Our organisation competes in one of the world’s

quickest evolving industries. We are continuously

facing up to the challenges of new technologies,

new products and new developments in PC

design, which means we have to be quick on our

feet and learning all the time.

Probably a key component of Mustek’s ongoing

success is that executive management has

always clearly grasped the need to keep our

workforce skills levels up to the demands of

the industry.

18


Social Responsibility(continued)

As a consequence our training programme gets

the open-handed budget it needs to ensure that

our workforce is properly skilled throughout,

with each employee attending on average at

least one training course per annum.

With a stable and settled workforce that records a

lower turnover than most local ICT operations,

Mustek can develop people with the potential for

senior and executive positions. In line with national

directives, priority is accorded to previously

disadvantaged individuals (PDIs) and women.

Our employee development policy is

comprehensive and proactive. We identify staff

members that can benefit from further

development and provide the necessary training.

We also actively encourage employees to

approach the HR department when they believe

that additional training can benefit Mustek and

themselves. Each case is weighed on merit, and

the go-ahead is given if HR concurs. Where

necessary, Mustek will offer finance or time off

to study.

As an accredited member of ISETT SETA, we

ensure that our course material complies with

NQF (National Qualification Framework)

standards, which also enabled Mustek to fully

reclaim its skills development levies for the

financial year.

Diversity and opportunity

For many years now Mustek’s workforce has

been closely aligned to South Africa’s

demographics, being drawn from a wide variety

of cultures and languages. Our work culture

embraces all employees into a “greater Mustek

family”, we view all people as equals and do not

tolerate unfair discrimination in any form. When

vacancies occur, Mustek first seeks to promote

or transfer people within its ranks before going

out to the broader job market.

HUMAN RIGHTS

Non-discrimination

The South African constitution, recognised as

being among the most advanced in the world,

outlaws all forms of unfair discrimination.

Since its inception Mustek has employed a

multicultural workforce. Our long track record of

peaceful employee relations proves that Mustek

people work together in a stable and considerate

environment.

Freedom of association

Mustek complies with the Labour Relations Act

and all associated labour legislation. Our

employees may associate with any representative

organisation or trade union that they choose.

19


Disciplinary practices

All cases and disputes are handled in terms of a

legally compliant disciplinary code and grievance

procedure that is applicable to all Mustek’s

South Africa-based workers. Disciplinary and

grievance procedures have been extensively

circulated to all our workplaces.

HIV/Aids and the workplace

In 2002 Mustek introduced a comprehensive

HIV/Aids strategy founded on the core principle

that the human rights and dignity of its employees

infected by the virus should be upheld, while

also recognising that fellow workers should be

thoroughly educated regarding the pandemic

and protected where possible.

Other large South African commercial

organisations have since adopted versions of

this groundbreaking HIV/Aids company policy.

Although Mustek has felt the sting of valued

colleagues falling to HIV/Aids complications, and

will probably continue to do until a cure is found,

the comparative worker peace that prevails

within the Group regarding HIV/Aids is testament

to Mustek’s far-sighted and pragmatic approach

launched five years ago.

SOCIETY

Corporate social investment (CSI) –

2004/05 financial year

Mustek has a long and proud record in community

support and corporate social investment

(CSI), and in this year contributed nearly

R2 million to various CSI projects. We traditionally

focus our CSI efforts on children’s needs – in

particular their education – but also support

charities, sporting events and government

programmes.

Computers and education in Africa’s

schools

We are proud of being able to leverage our

ICT expertise and country-wide infrastructure to

help develop ICT learning facilities in schools

across Africa. In South Africa we have for several

years been involved with school computerisation

programmes such as GautengOnline and the

Khanya project, which is intended to further

e-learning in schools by installing dedicated

computer centres.

In this year Mustek was allocated 27 of the 80

schools earmarked for GautengOnline Phase 5.

Our allocation was the biggest single share

given to any of the six involved ICT vendors, and

all our installations were completed on schedule.

Toward the end of the financial year Mustek’s

Mecer division won a tender from North West

Province to equip 134 of its schools with “thin

client” ICT systems and we continue to be

the vendor of choice in the Western Cape’s

Khanya project.

20


NEPAD

Mustek is heavily involved, with partners

Microsoft and Oracle, in the pilot phases of

NEPAD’s e-School’s Initiative. To date Mustek

has contributed to 21 schools in nine African

countries, including Gabon, Ghana, Kenya, Mali,

Lesotho, Nigeria, Rwanda and Senegal.

Inter-ED

Under continual development by Mustek since

1996, Inter-ED is a multilingual, multimedia

system that enables students to learn basic

numeracy, literacy and life skills in any of

South Africa’s 11 official languages. InterED

supports true multilinguism and promotes

learner self-confidence, as users can proceed at

their own pace.

Learners also get prompt and appropriate

support from teachers, who are provided with

a suite of tools to monitor, intervene and

interact with any or all learners logged into

the network.

Inter-ED is installed in many GautengOnline and

other schools with ICT learning centres

throughout South Africa.

Social Responsibility(continued)

21


Group Structureas at 30 June 2006

Quickstep 94 (Pty) Ltd

Comztek (Pty) Ltd

MFS Technologies (Pty) Ltd

Mecer East Africa Ltd100%

100%

40%

30%

100%

CIS Thuthukani Technology (Pty) Ltd

Mecer (EPZ) Ltd

Lithatek Investments (Pty) Ltd

Mustek Electronics Durban (Pty) Ltd

Mustek Electronics Cape Town (Pty) Ltd

Mustek Electronics Port Elizabeth (Pty) Ltd

Mustek Investments (Pty) Ltd

Mustek International (Pty) Ltd

Mustek Management (Pty) Ltd

Mecer (Pty) Ltd

Quickstep 95 (Pty) Ltd

Mandarin Trading House (Pty) Ltd

Mecer Finance (Pty) Ltd

Planet Internet (Pty) Ltd

First Campus (Pty) Ltd

Inter-Ed (Pty) Ltd

100%

100%

100%

44,7%

Rectron Johannesburg100%

Rectron Cape Town100%

Rectron Durban100%

Rectron Bloemfontein100%

Rectron Australia (Pty) Ltd50%

Corex IT Distribution Dynamics (Pty) Ltd60%

68%

38%

100%

8%Datazone Ltd

Mecer Inter-Ed (Pty) Ltd100%

PWS Investments (Pty) Ltd100%

100%

Brotek (Pty) Ltd100% Brobusmac Investments (Pty) Ltd100%

L I M I T E DRegistration number 1987/070161/06

Makeshift 1000 (Pty) Ltd

100% Tradeselect 38 (Pty) Ltd

100% Mustek Mecer Gauteng100%

Mecer Western Cape

Mecer Eastern Cape

Mecer KwaZulu-Natal

100%

100%

100%

65,8% Rectron Holdings Ltd

Rectron Port Elizabeth100%

Casetek International Co Ltd

Soft 99 (Pty) Ltd

Preworx (Pty) Ltd

Secure Electronic Commerce (Pty) Ltd

100%

Wavetrend Technologies Ltd14,6%

Comztek Africa (Pty) Ltd100%

Netshield (Pty) Ltd31%

Mustek Limited Co Ltd

Mustek Zimbabwe Private Ltd

Zinox Technologies Ltd

Mecer Digital Do Brasil LTDA

Dormant

Formprops 110 (Pty) Ltd100%

Sheerprops 69 (Pty) Ltd100%

22


Board of Directors

EXECUTIVE DIRECTORS

David Kan

Chief executive officer

David Kan, aged 47, is the co-founder and a major shareholder of Mustek, and its CEO since the Group’s inception in 1987. He holds a BSc (Eng) degree, with a major in mechanical engineering.

Hein Engelbrecht

Financial director

Hein Engelbrecht, aged 37, holds a BCom (Hons) degree, is a registered chartered accountant, and joined the group in 1997 as Group financial manager. Hein completed his articles with Grant Thornton Kessel Feinstein and spent two and a half years as financial manager of Office Directions (Pty) Limited. Hein was appointed to the board as financial director on 1 September 2000.

Tony Wang

Technology and international operations director

Tony Wang, aged 56, was appointed as director in 1999 and has over 20 years of executive experience in international IT markets, including the USA, the Pacific Rim and Africa. He holds a BSc degree.

NON-EXECUTIVE DIRECTORS

Vuli Cuba

Non-executive chairman

Vuli Cuba was born in 1955 and studied at the University of Fort Hare (1975 – 1978), where he was awarded a BSc in Land Surveying and won the Abe Bailey trust award, and at the University of South Africa (1983 – 1986), where he gained a BSc in Information Systems and won the Italian Government academic performance scholarship. He completed his further education at the London Business School in England (1991 – 1993), where he gained an MBA degree and was presented with the Helen Suzman leadership award. Vuli has extensive strategy and ICT consulting experience gained while working for Andersen Consulting (now Accenture) and Monitor Consulting covering a period of more than ten years. In September 1995 Vuli founded Safika Holdings (Pty) Limited, together with economist Moss Ngoasheng, and is currently the CEO of the company. Vuli’s directorships include Stanlib Limited, Foschini Limited and Safika Holdings. He is the founder and former president of ENSA (Enterprise Network of South Africa), the South African affiliate of the Southern African Enterprise Network that is headquartered in Lusaka, Zambia. He is also the founder and honorary chairman of the Swiss – South African Chamber of Commerce.

Mike Hennessy

Non-executive director

Mike Hennessy, aged 61, joined the Mustek board in 1997, after 35 years in auditing. Mike holds a BA (Hons) degree, is a registered chartered accountant and has been a partner of Deloitte & Touche since 1974 until he joined Mustek.

Dr. Len Konar


Doctor Len Konar, aged 52, joined the Mustek board on 25 November 2003. Len is a chartered accountant and was previously executive director of The Independent Development Trust where he was, amongst other activities, responsible for the internal audit and investments portfolios. Prior to that, he was Professor and head of the Department of Accountancy at the University of Durban – Westville. He is the past patron of the Institute of Internal Auditors South Africa, and a member of the King Committee on Corporate Governance, the Securities Regulation Panel, the Corporate Governance Forum and the Institute of Directors. He is also the chairperson of the Ministerial Panel for the review of the regulation of accountants and auditors. Dr Konar is also a non-executive director of Old Mutual South Africa, the South African Reserve Bank, J D Group, Sappi, Kumba Resources and Steinhoff International Holdings.

Mdu Gama


Mdu Gama, aged 37, was appointed as director of Mustek in 2002. He holds a MBA degree and various management qualifications from SA, US and UK universities. Mdu is currently the CEO of Safika Asset Finance (Pty) Limited and a non-executive director of Comztek (Pty) Limited.

23


Annual Financial Statements30 June 2006

CONTENTS

24 Directors’ Responsibility for Financial Reporting

24 Certification by Company Secretary

25 Corporate Governance Statement

29 Report of the Independent Auditors

30 Report of the Directors

39 Consolidated Income Statement

40 Consolidated Balance Sheet

41 Consolidated Statement of Changes in Equity

42 Consolidated Cash Flow Statement

43 Company Income Statement

44 Company Balance Sheet

45 Company Statement of Changes in Equity

46 Company Cash Flow Statement

47 Accounting Policies

56 Notes to the Annual Financial Statements

101 Annexure A – Investments in Subsidiaries

103 Annexure B – Investments in Associates

104 Annexure C – Other Investments and Loans

Fin

an

cial

Sta

tem

en

ts

24


The directors of the company are responsible for the maintenance of adequate accounting records and the preparation and integrity of the annual financial statements and related information. The financial statements are based on appropriate accounting policies supported by reasonable and prudent judgements, with estimates that have been consistently applied and have been prepared in accordance with International Financial Reporting Standards. The Group’s joint independent external auditors, Henry K H Pon & Co and Deloitte & Touche, have audited the financial statements and their unqualified report appears on page 29.

The directors are also responsible for the systems of internal control. These are designed to provide reasonable, but not absolute, assurance as to the reliability of the financial statements, and to adequately safeguard, verify and maintain accountability of assets, and to prevent and detect material misstatement and loss. The systems are implemented and monitored by suitably trained personnel with an appropriate segregation of authority and duties. Nothing has come to the attention of the directors to indicate that any

material breakdown in the functioning of these controls, procedures and systems has occurred during the year under review.

The annual financial statements are prepared on a going concern basis. Nothing has come to the attention of the directors to indicate that the company will not remain a going concern for the foreseeable future.

The annual financial statements set out on pages 30 to 104 were approved by the board of directors on 30 August 2006 and are signed on their behalf by:

W V Cuba

D C Kan

Directors’ Responsibility for Financial Reporting for the year ended 30 June 2006

In my capacity as company secretary, I hereby confirm, in terms of section 268 G(d) of the Companies Act, 1973, that for the year ended 30 June 2006, the company has lodged with the Registrar of Companies all such returns as are required of a public company in terms of this Act and that all such returns are true, correct and up to date.

C J Coetzee

Secretary

Certification by Company Secretary

25


THE KING CODE OF CORPORATE PRACTICES AND CONDUCT

In accordance with the requirements of the JSE Limited, applicable to all companies listed on the Main Board of the JSE Limited, the directors submit that they subscribe to the principles incorporated in the Code of Corporate Practices and Conduct as set out in the King Report and substantially comply therewith. The directors have recognised the need to conduct the enterprise with integrity and in accordance with generally accepted corporate practices.

BOARD OF DIRECTORS AND SECRETARY

The Board is responsible for the adoption of strategic plans, monitoring of operational performance and management, determination of policy and processes to ensure the integrity of the company’s risk management and internal controls, communications policy, and director selection, orientation and evaluation. These responsibilities are set out in the approved Board Charter. To adequately fulfil their responsibilities, directors have unrestricted access to timely financial information, all company information, records, documents and property. Directors are provided with guidelines regarding their duties and responsibilities as directors and a formal orientation programme has been established to familiarise incoming directors with information about the company’s business, competitive position and strategic plans and objectives.

The Board meets at least four times a year and additional meetings are held when non-scheduled matters arise. At all Board meetings, directors declare their interests in contracts where applicable.

The Corporate Board comprises three executives and five non-executive directors, including the Chairman and Chief Executive Officer. The roles of the Chairman and the Chief Executive Officer do not vest in the same person. Major responsibilities of the Board include the appointment of the Chairman and Chief Executive Officer and other Board members, and agreement of the top management structures and management succession. The Corporate Board is responsible to shareholders, but it proceeds mindful of the interests of the group’s staff, customers, suppliers and the communities in which the group pursues its business. The names of the executive and non-executive directors in office at

30 June 2006 and at the date of this report are set out in the report of the directors.

AUDIT COMMITTEE

The audit committee, which was formed in 1997, comprises four non-executive directors. The external auditors have unrestricted access to this committee. Its principal functions are to review the annual financial statements and accounting policies, the effectiveness of the internal controls over management information and other systems of internal control, the reported interim financial information and the effectiveness of the internal audit process and to discuss the auditors’ findings and recommendations. The external auditors are appointed each year, based on the recommendations of the audit committee.

The Committee operates within defined terms of reference and authority granted to it by the Board and meets at least two times a year when the external auditors and the Group chief executive officer and finance director are invited to attend. The external auditors have unrestricted access to the audit committee. The members of the committee are considered to have sufficient financial skills and knowledge to carry out their duties and responsibilities.

The audit committee ensures that there is appropriate independence relating to non-audit services provided by the external auditors. A process exists to evaluate which services are permissible. These services provided are reviewed on an annual basis.

REMUNERATION AND NOMINATION COMMITTEE

A separate remuneration and nomination committee was established in 1997. This committee performs the functions as envisaged in the guidelines set out in the King Report. The remuneration committee comprises two independent non-executive directors and the chief executive officer.

The committee operates within defined terms of reference and authority granted to it by the board and meets at least twice a year. The group finance director and the Human Resources manager are invited to attend these meetings, but neither may take part in decisions regarding their own remuneration, nor the chief executive officer.

Corporate Governance Statementfor the year ended 30 June 2006

26


The committee is responsible for making recommendations to the board on the company’s framework of executive remuneration and to determine specific remuneration packages for each of the executive directors and certain senior managers of the Group. The committee is also responsible for the Group’s remuneration policies and the award of bonuses and the allocation of share options in terms of the Group’s share option and incentive scheme. The committee makes recommendations to the board regarding the appointment of new executive and non-executive directors and makes recommendations on the composition of the board generally.

INSIDER TRADING

Directors and officers of the Group who have access to unpublished price-sensitive information are prohibited from dealing in the shares of the company during defined restricted periods, including those periods immediately prior to the announcement of interim and final financial results.

RISK MANAGEMENT

The focus of risk management in Mustek is on identifying, assessing, mitigating, managing and monitoring all known forms of risk across the Group. Management is involved in a continuous process of developing and enhancing its comprehensive systems for risk identification and management. The risks to the business encompass such areas as the world product prices, exchange rates, political and economic factors, legislation and national regulations, interest rates, people skills, and general operational and financial risks.

The major risks are the subject of the ongoing attention of the board of directors and are given particular consideration in the annual strategic plan which is approved by the board. A strategic risk assessment is carried out on an annual basis and a documented and tested disaster recovery plan exists.

The management of operational risk is a line function, conducted in compliance with a comprehensive set of Group policies and standards to cover all aspects of operational risk control. Performance is measured on a regular basis by means of both self-assessments and audits by independent consultants. In addition, the Group

promotes ongoing commitment to risk management and control by participating in externally organised risk management and safety systems.

Insurance cover on assets is based upon current replacement values. Consistent with the high standard of risk management, a substantial portion of risk is self-insured at costs well below market premiums. All risks are adequately covered, except where the premium cost is excessive in relation to the probability and extent of loss.

ENVIRONMENT

The underlying philosophy of the Group’s environmental policy is the adoption of protective strategies to manage and control the impact of Mustek’s operations upon the environment, at the same time as safeguarding its extensive assets and human resources.

SOCIAL INVESTMENT

The Group operates in diverse environments where, particularly in the African and South American countries of operation, the development needs of the communities from which it draws its employees are significant.

Recognising Mustek’s interdependence with these communities, the Group has active social investment programmes in each country of operation which are structured to address the specific needs of such communities.

FINANCIAL AND INTERNAL CONTROL

The board of directors is responsible for the Group’s systems of internal control. To fulfil its responsibilities, management maintains accounting records and has developed, and continues to maintain appropriate systems of internal control. The directors report that the Group’s internal controls and systems are designed to provide reasonable, and not absolute assurance, as to the integrity and reliability of the annual financial statements and to safeguard, verify and maintain accountability of its assets and to detect and minimise significant fraud, potential liability, loss and material misstatement while complying with applicable laws and regulations.

The Group has implemented a system of control self-assessment across all Group companies.

Corporate Governance Statementfor the year ended 30 June 2006 (continued)

27


Local management is required to complete and submit control self-assessment programmes bi-annually. Local management is monitored against internal control norms in other Group companies and action is taken when ratings are considered to be inadequate.

Employees are required to maintain the highest ethical standards in ensuring that business practices are conducted in a manner, which in all reasonable circumstances, is above reproach.

It must be recognised that systems of internal control can provide only reasonable, and not absolute assurance. In that context, none of the above reviews indicated that the systems of internal control were not appropriate or satisfactory. Furthermore, no material loss, exposure or misstatement arising from the material breakdown in the functioning of the systems has been reported to the directors in respect of the year under review.

Nothing came to the attention of the directors or arose out of the internal control self-assessment process or year-end external audits to indicate that any material breakdown in the functioning of the Group’s internal controls, procedures and systems had occurred during the course of the year.

INTERNAL AUDIT

Internal audit is an independent appraisal function, which examines and evaluates the activities and the appropriateness of the systems of internal control, risk management and governance processes. This function has been outsourced to specialist external service providers.

Internal audit reports to the chief executive officer on day-to-day matters. Audit plans are based on an assessment of risk areas. A number of internal audits were conducted during the period under review.

The objective of internal audit is to assist the board in the effective discharge of its responsibilities.

MANAGEMENT REPORTING

Management reporting disciplines include the preparation of annual budgets by operating entities. Monthly results and the financial status of operating entities are reported against the approved budgets. Profit projections and cash flow forecasts are reviewed regularly, while working capital and borrowing levels are monitored on an ongoing basis.

GOING CONCERN

The annual financial statements and group annual financial statements set out on pages 30 to 104 have been prepared on the going concern basis since the directors have every reason to believe that the company and Group have adequate resources in place to continue in operation for the foreseeable future.

EMPLOYEE PARTICIPATION

The Group will continue to have its operating decisions made at the appropriate levels of its diverse business. Participative management lies at the heart of this strategy, which relies on the building of employee partnerships at every level to foster mutual trust and to encourage people to always think about how they can do things better. The Group strives to liberate the initiative and energies of its people, because they are the ones who make the difference to the performance of the Group.

EMPOWERMENT AND EMPLOYMENT EQUITY

Mustek places particularly high value on the abilities and contributions made by employees in the development and achievements of its businesses.

The Group is open to new partnerships that will increase shareholder value as well as plough back skills and resources into the South African community.

The Group has employment policies, which it believes are appropriate to the business and the market in which it trades. They are designed to attract, motivate and retain quality staff at all levels. Equal employment opportunities are offered to all employees without discrimination.

Around the globe, the Group is an equal opportunities employer. In terms of the Employment Equity Act, the Group strives to afford all staff members opportunities to realise their full potential and advance their careers. The Group is committed to a working environment that is free from any discrimination and seeks to develop skills and talent inherent in its work force.

28


COMPANY SECRETARY

All directors have access to the advice and services of the company secretary and are entitled and authorised to seek independent and professional advice about affairs of the Group at the Group’s expense. The company secretary is responsible for the duties set out in Section 268G of the Companies Act. The certificate required to be signed in terms of subsection (d) of the Act appears on page 24.

CODE OF ETHICS

The Group subscribes to a code of ethics and endeavours to act with honesty, responsibility and integrity towards all stakeholders.

The Group also undertakes to investigate all incidents involving potentially fraudulent activities and to adapt procedures to prevent future unethical behaviour when deemed necessary.

The directors are of the opinion that the Group complies with the code of ethics.

SHAREHOLDER RELATIONS

Mustek’s investor relations programme includes communications with shareholders through interim and annual reports, meetings and presentations.

BOARD MEETINGS AND ATTENDANCE

Board meetings

Auditcommittee meetings

Remunera-tion and

nomination committee meetings

V CubaD KanH EngelbrechtT WangM HennessyM GamaL KonarS Mabaso*

444—3441

222—1221

—33———3—

Total 4 2 3

*Served for part of the year as director

Corporate Governance Statementfor the year ended 30 June 2006 (continued)

29


Report of the Independent Auditors to the members of Mustek Limited

for the year ended 30 June 2006

We have audited the annual financial statements and Group annual financial statements of Mustek Limited set out on pages 30 to 104 for the year ended 30 June 2006. These financial statements are the responsibility of the company’s directors. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with International Standards of Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements fairly present, in all material respects, the financial position of the Group and company at 30 June 2006 and the results of their operations and cash flows for the year then ended in conformity with International Financial Reporting Standards, and in the manner required by the Companies Act of South Africa.

Henry K H Pon & Co

Registered Auditors

Per: H K H Pon

Partner

30 August 2006

1st Floor, 17 Commissioner Street Johannesburg 2001

Partners: Henry K H Pon and Denise Hendson

Deloitte & Touche

Registered Auditors

Per: D F Crowther

Partner

30 August 2006

221 Waterkloof Road Waterkloof 0181

National Executive:

G G Gelink Chief Executive

A E Swiegers Chief Operating Officer

G M Pinnock Audit

D L Kennedy Tax

L Geeringh Consulting

M G Crisp Financial Advisory

L Bam Strategy

C R Beukman Finance

T J Brown Clients & Markets

S J C Sibisi Public Sector and Corporate Social Responsibility

N T Mtoba Chairman of the Board

J Rhynes Deputy Chairman of the Board

Regional Leader:

T Kalan

A full list of partners and directors is available on request

30


INTRODUCTION

The directors have pleasure in presenting their report on the activities of the company and the Group for the year ended 30 June 2006.

GENERAL REVIEW

Mustek Limited is a listed company on the JSE Limited and the Group’s major activities comprise the procurement, assembly, distribution and servicing of computers, computer components and allied products. The Group’s profit before taxation from these activities was R77,4 million (2005: R144,9 million).

SHARE CAPITAL

The authorised and issued share capital of the company is detailed in note 20 to the annual financial statements.

DIRECTORS AND SECRETARY

S N Mabaso was appointed as a non-executive director on 15 May 2005 and resigned on 12 June 2006. C C Kan retired as non-executive chairman on 31 March 2005. W V Cuba was appointed as Chairman on 25 July 2005. The directors in office at the date of this report are as follows:

Non-executive Executive Business address Postal address

W V Cuba (Chairman) D C Kan (Chief executive officer)▲∞ 322 15th Road PO Box 1638

M F Hennessy†▲√ Y T Wang*∞ Randjespark Parklands

M E Gama∞ H Engelbrecht Midrand 2121

D Konar†▲√ 1685

*Republic of China

√Independent

†Audit committee member

▲Remuneration and nomination committee member

∞ These directors are retiring in terms of the company’s Articles of Association. In terms of the statutes of the company D C Kan, Y T Wang and M E Gama are available for re-election at the next annual general meeting. Biographical details of all the directors are set out on page 22.

Secretary – C J Coetzee

The business and postal address of the secretary is shown above.

In terms of a transaction with Safika Holdings (Proprietary) Limited (Safika) approved by shareholders on 31 August 2004, Safika has the right to nominate one more executive director to the board of directors. This right was not exercised at the end of the current year. See note 20 to the annual financial statements for further information.

Report of the Directors 30 June 2006

31


DIRECTORS’ SHAREHOLDING

At 30 June 2006, the directors collectively held the following direct and indirect interests in shares in the company, which represents 9,3% (2005: 9,7%) of the issued share capital of the company. (No change occurred between 30 June 2006 and 25 August 2006):

Direct and beneficial Indirect and non-beneficial

2006 2005 2006 2005

D C Kan† 1 238 500 1 201 955 6 509 883 6 723 428

M F Hennessy 200 000 358 563 400 000 400 000

T Wang 1 238 282 1 240 000 — —

H Engelbrecht 430 000 200 000 — —

D Konar 25 303 25 303 — —

3 132 085 3 025 821 6 909 883 7 123 428

† He has voting rights and the right to dividends on a further 3 000 000 shares (2005: 3 000 000 shares) entered into a scrip lending agreement. That increases the interest of directors to 12,1% (2005: 12,8%).

These shareholdings exclude options held. The remainder of the directors do not hold any shares.

EXECUTIVE SHARE TRUST

The scheme consists of both a share option scheme where options can be awarded by either the company or the trust and a share purchase scheme where shares are purchased through the trust. In terms of the option scheme, participants are granted options to acquire shares in the company. In terms of the share purchase scheme, shares are offered to employees for purchase.

The allocation shares are acquired by participants at the middle market price on the trading day immediately preceding the day upon which the options were granted.

Share options or purchase offers must be accepted within 14 days of grant date and must be exercised within one calendar year. These shares will therefore not be deemed issued until actually issued and delivered and is not included in issued share capital in notes 9 and 20. Payment is only due on delivery. Options or purchase offers accepted and exercised lapse on resignation.

Shares acquired in terms of either schemes will only be delivered to the participants after expiry of the following periods from date of acceptance:

Year 1 5% Year 4 50%

Year 2 15% Year 5 70%

Year 3 30% Year 6 100%

The directors may and have amended these delivery periods and percentages.

There are no share purchase offers outstanding as at 30 June 2006. Until 30 June 2003 the trust did not own any shares. On 1 July 2003 the Trust was offered 2 895 358 options at R5,00 each to be delivered equally over a five-year period. The trust accepted and exercised the full option and was issued the first tranche of 20%, 579 071 shares on 1 July 2004 and 579 072 shares on 8 September 2005. In turn, the trust allocated 1 158 143 shares for transfer to participants at R5,00 each after obtaining the necessary permission from the JSE listings division. As a result of the ruling, the remaining 1 737 215 (2005: 2 316 287) options are taken into account in the calculation of diluted earnings per share in note 9.

32


Report of the Directors 30 June 2006 (continued)

EXECUTIVE SHARE TRUST (continued)

Weighted average price Number of options

2006 2005 2006 2005

Options undelivered at the beginning of the year R3,44 R3,19 6 490 237 9 567 258

Options granted during the year R10,34 — 7 800 000 —

Shares delivered during the year (see note 20) R2,39 R2,65 (2 871 022) (3 077 021)

Options undelivered at year-end R8,42 R3,44 11 419 215 6 490 237

7 800 000 options were granted to employees during the year (2005: Nil). All of these options have been accepted but have not been exercised at 30 June 2006 (2005: Rnil).

In 2006, 4 000 000 and 3 800 000 options were granted on 2 March and 29 June respectively and accepted by all participants. The estimated fair values of the options granted on those dates are R2,54 and R2,71 respectively. No options were granted in 2005. The fair values were calculated using a binomial tree that adheres to all the Black-Scholes option pricing model principles. In terms of IFRS 2, share options allocated and accepted with all conditions being met before 7 November 2002, were not valued. All these share options are equity settled and therefore only valued upon granting. The inputs into the model were as follows:

29 June 2006

2 March 2006

Before1 July 2005

Weighted average share price R10,05 R10,62 R5,00

Weighted average exercise price R10,01 R10,66 R5,00

Expected volatility 27% 25% 33%

Expected life 8 years 8 years 8 years

Risk free rate 8,5% 7,5% 9,0%

Expected dividend yield 5,5% 5,5% 5,0%

Expected volatility was determined by calculating the historical volatility of the company’s share price over the previous six years. The Group and company recognised total expenses of R2 607 780 (2005: R1 632 387 restated in terms of IFRS 2) related to equity-settled share options during the current and previous years.

The options valued will be expensed as follows:

2006 R000

2005 R000

First year 10 147 1 044

Second year 4 852 627

Third year 2 753 279

Fourth year 1 502 —

Fifth year 547 —

19 801 1 950

33


EXECUTIVE SHARE TRUST (continued)

Options accepted and/or exercised may lapse and shares may be early-delivered to participants under certain circumstances.

2006 2005

Held by:

Executive directors 4 115 000 1 655 000

Executives and employees 5 567 000 2 518 950

Executive share trust 1 737 215 2 316 287

11 419 215 6 490 237

Share options exercised, including these R5,00 options held by the trust, are due for delivery and payment at the following values and in the following periods ending 30 June:

2006

Option price 2007 2008 2009 2010 2011

Number of undelivered

sharesTotal Rand

value

R1,65 557 000 — — — — 557 000 919 050

R2,25 45 000 — — — — 45 000 101 250

R3,50 210 000 210 000 — — — 420 000 1 470 000

R5,00 729 071 909 072 959 072 — — 2 597 215 12 986 075

R10,01 760 000 760 000 760 000 760 000 760 000 3 800 000 38 038 000

R10,66 800 000 800 000 800 000 800 000 800 000 4 000 000 42 640 000

3 101 071 2 679 072 2 519 072 1 560 000 1 560 000 11 419 215 96 154 375

2005

Option price 2006 2007 2008 2009

Number of undelivered

sharesTotal Rand

value

R1,32 1 437 450 — — — 1 437 450 1 897 434

R1,65 557 000 557 000 — — 1 114 000 1 838 100

R2,25 45 000 45 000 — — 90 000 202 500

R3,50 140 000 210 000 210 000 — 560 000 1 960 000

R5,00 691 572 729 072 909 071 959 072 3 288 787 16 443 935

2 871 022 1 541 072 1 119 071 959 072 6 490 237 22 341 969

The directors may amend the delivery periods or percentages. The full balance available for delivery in 2005 and 2006, was delivered. The weighted average price of the options outstanding during the year is R8,42 per option (2005: R3,44).

34



SHARE OPTIONS

The directors have the following share options outstanding or delivered to them after being accepted at the following dates:

2006

Director

Offer

price Acceptance date

Undelivered

shares at

30 June

2005

Delivered

during

the year Delivery date

Undelivered

shares at

30 June

2006

Share

option

gain

2006*

D C Kan R1,65 9 July 2001 150 000 75 000 8 September 2005 75 000 698 250

D C Kan R1,32 30 November 2000 525 000 525 000 5 December 2005 — 4 242 000

D C Kan R10,01 29 June 2006 — — N/A 2 250 000 —

T Wang R3,50 19 August 2002 560 000 140 000 8 September 2005 420 000 1 044 400

H Engelbrecht R1,32 30 November 2000 122 550 122 550 5 December 2005 — 990 204

H Engelbrecht R1,32 3 January 2001 57 450 57 450 7 March 2006 — 521 646

H Engelbrecht R1,65 9 July 2001 240 000 120 000 8 September 2005 120 000 1 117 200

H Engelbrecht R10,01 29 June 2006 — — N/A 1 250 000 —

1 655 000 1 040 000 4 115 000 8 613 700

2005

Director

Offer

price Acceptance date

Undelivered

shares at

30 June

2004

Delivered

during

the year Delivery date

Undelivered

shares at

30 June

2005

Share

option

gain

2005*

D C Kan R1,65 9 July 2001 200 000 50 000 3 September 2004 150 000 340 000

D C Kan R1,32 30 November 2000 1 050 000 525 000 1 November 2004 525 000 3 927 000

T Wang R3,50 19 August 2002 665 000 105 000 3 September 2004 560 000 519 750

H Engelbrecht R1,32 30 November 2000 245 100 122 550 1 November 2004 122 550 916 674

H Engelbrecht R1,32 3 January 2001 114 900 57 450 2 March 2005 57 450 497 517

H Engelbrecht R1,65 9 July 2001 320 000 80 000 3 September 2004 240 000 544 000

2 595 000 940 000 1 655 000 6 744 941

* The gain represents the increase in value of shares from the option value at the date of acceptance and exercise of the options, to the share value on the date of delivery of the shares.

35


DIRECTORS’ EMOLUMENTS

Fees for services

R000

Basic salary R000

Expense allowances

R000

Pension contributions

R000Total R000

2006

Executive directors — 1 517 609 67 2 193

D C Kan — 558 338 67 963

H Engelbrecht — 630 271 — 901

Y T Wang — 329 — — 329

Non-executive directors 553 — 99 — 652

W V Cuba 150 — — — 150

S N Mabaso# — — — — —

M F Hennessy 103 — 98 — 201

M E Gama 180 — 1 — 181

D Konar 120 — — — 120

553 1 517 708 67 2 845

2005

Executive directors — 1 515 609 67 2 191

D C Kan — 556 338 67 961

H Engelbrecht — 630 271 — 901

Y T Wang — 329 — — 329

Non-executive directors 462 — 92 — 554

C C Kan* 75 — 1 — 76

W V Cuba# — — — — —

S N Mabaso# — — — — —

M F Hennessy 111 — 90 — 201

M E Gama 180 — 1 — 181

D Konar 96 — — — 96

462 1 515 701 67 2 745

*For a nine-month period until resignation

#No fees paid

Gains made by directors on share options are disclosed on the previous page.

36



SUBSIDIARIES

The interest of the company in the aggregate net profit (loss) after tax of subsidiaries and joint venture is:

2006R000

2005R000

Net aggregate profits 54 307 55 022

Net aggregate losses (13 884) (9 334)

Details of the company’s subsidiaries are set out in note 12 and Annexure A to these annual financial statements.

DIVIDENDS

A final dividend of 30 cents per ordinary share was declared on 23 September 2005 and paid on 3 October 2005. An interim dividend for the current year of 35 cents per ordinary share was declared on 16 March 2006 and paid on 27 March 2006. (A final dividend of 25 cents per ordinary share was declared on 23 September 2004 and paid on 4 October 2004 and a prior year interim dividend of 30 cents per ordinary share was declared on 16 March 2005 and paid on 29 March 2005.)

SHAREHOLDERS’ SPREAD

At 30 June 2006, insofar as is known, the following shareholders beneficially held more than 5% of the issued Mustek Limited shares:

Shareholding – ordinary shares in issueNumber of

shares% of shares

in issue

DK Trust (*) 6 509 883 6,1CCK Trust 6 000 000 5,6

12 509 883 11,7

* David Kan, chief executive and a trustee of this trust, also owns 1 238 500 shares (2005: 1 201 955 shares) and has voting rights for another 3 000 000 shares (2005: 3 000 000) increasing this percentage to 10,0% (2005: 10,4%).


shareholders %Number of

shares% of shares

in issue

1 – 5 000 2 160 79,9 3 460 023 3,25 001 – 10 000 223 8,2 1 756 377 1,610 001 – 50 000 189 7,0 4 113 633 3,850 001 – 100 000 37 1,4 2 899 863 2,7100 001 – 1 000 000 69 2,6 28 236 749 26,3Over 1 000 000 24 0,9 67 048 016 62,4

2 702 100,0 107 514 661 100,0

Public/non-public shareholdersNumber of


shares% of shares

in issue

Non-public shareholdersDirectors of the company 5 0,2 3 132 085 2,9Trusts with directors as trustees 2 0,1 6 909 883 6,4Public shareholders 2 695 99,7 97 472 693 90,7

2 702 100,0 107 514 661 100,0

37


At 30 June 2005, insofar as is known, the following shareholders beneficially held more than 5% of the issued Mustek shares:


shares% of shares

in issue

DK Trust (*) 6 723 428 6,4

CCK Trust 6 000 000 5,7

12 723 428 12,1



shares% of shares

in issue

1 – 5 000 1 501 77,2 2 154 243 2,1

5 001 – 10 000 137 7,0 1 085 430 1,0

10 001 – 50 000 155 8,0 3 668 205 3,5

50 001 – 100 000 39 2,0 3 037 190 2,9

100 001 – 1 000 000 89 4,6 32 583 002 31,1

Over 1 000 000 24 1,2 62 115 569 59,4

1 945 100,0 104 643 639 100,0

Public/non-public shareholdersNumber of


shares% of shares

in issue

Non-public shareholders

Directors of the company 5 0,3 3 025 821 2,9

Trusts with directors as trustees 2 0,1 7 123 428 6,8

Public shareholders 1 938 99,6 94 494 390 90,3

1 945 100,0 104 643 639 100,0

38



FAIR VALUE ADJUSTMENTS TO AND IMPAIRMENTS OF INVESTMENTS IN AND LOANS TO SUBSIDIARIES, ASSOCIATES AND OTHER INVESTMENTS

The directors considered the fair value of Mustek’s investments in and loans to subsidiaries, associates and other investments. Refer Annexures A, B and C to the notes to the annual financial statements for more information.

Preworx (Pty) Limited

The directors have decided to use the net asset value of the company, adjusted for the Group’s equity share of losses, as the best indicator of fair value of the investment. The remainder of the investment of R6,6 million had been written down in the previous year. The directors consider the loan of R10,0 million to be fully recoverable due to the Group being the only major creditor to the company with the ability to acquire and use the intellectual property of the company which is regarded as extremely valuable in the delivery of desktop solutions to corporate and government customers. The directors closely monitor the performance of this associate.

Wavetrend Technologies Limited

The Group has an option, through subsidiary Datazone Limited (registered in Taiwan) to obtain, from Bridgestone International, 574 646 shares of the total 3 934 642 shares in Wavetrend at a nominal value. Wavetrend issued 922 871 (2005: 851 897) shares to Private Equity firms during the financial year at a subscription price of US$5,87 (2005: US$5,87) each. This effectively values Datazone’s option to acquire Bridgestone’s 14,6% (2005: 19,1%) share in Wavetrend at US$3 372 744, converted at R7,12 (2005: R6,63), the year-end rate to the US$, at R24,0 million (2005: R22,4 million). The directors recorded the investment at R24,0 million (2005: R22,4 million) considering the track record of Wavetrend, its current performance and the guidance in accounting standards that a recent share transaction with an informed unrelated party is a strong indicator of value. A deferred capital gains tax liability of R3,5 million (2005: R3,2 million) has been raised against this revaluation. The only change in the current year represents a currency change that was processed directly to equity. In 2005 a revaluation of R22,4 million was processed through the income statement.

ACQUISITION OF SUBSIDIARIES

On 1 July 2005, Mustek Limited increased its investment in Mecer East Africa Limited and Mecer (EPZ) Limited from 51% to 100%. Mustek Limited also acquired the remainder of the issued share capital not previously held in Brotek (Pty) Limited effective 1 July 2005, as part of a Black Economic Empowerment transaction (See note 11). The Group also acquired Formprops 110 (Pty) Limited and Sheerprops 69 (Pty) Limited during the year.

POST-BALANCE SHEET EVENTS

The directors of the company propose a final dividend of 25 cents per share to all shareholders. There have been no other significant events subsequent to year-end up until the date of this report that require adjustment to or disclosure in these annual financial statements.

39


Consolidated Income Statementfor the year ended 30 June 2006

Notes2006R000

Restated2005R000

Continuing operations

Revenue 2 3 056 451 2 842 287

Cost of sales (2 553 827) (2 371 261)

Gross profit 502 624 471 026

Other income 17 738 15 697

Distribution, administrative and other operating expenses (412 067) (319 641)

Share of profit (loss) of associates 4 660 (567)

Profit from operations 3 112 955 166 515

Investment revenues 4 28 946 32 505

Finance costs 5 (63 846) (56 343)

Other (losses) and gains 6 (624) 2 249

Profit before tax 77 431 144 926

Income tax expense 7 (15 966) (42 807)

Profit for the year from continuing operations 61 465 102 119

Discontinued operations

Profit (loss) for the year from discontinued operations 8 13 128 (6 176)

Profit for the year 74 593 95 943

Attributable to:

Equity holders of the parent 61 821 82 199

Minority interest 12 772 13 744

74 593 95 943

Earnings and dividend per share (cents) 9

From continuing and discontinued operations:

Basic earnings per ordinary share 58,00 79,25

Diluted basic earnings per ordinary share 56,92 76,33

Dividend per ordinary share – paid 65,00 55,00

Dividend per ordinary share – proposed 25,00 30,00

From continuing operations:



40


Notes2006R000

Restated2005R000

ASSETSNon-current assetsProperty, plant and equipment 10 105 429 144 946Intangible assets 11 11 735 3 598Investments in associates 13 28 557 21 603Investment in joint venture 14 1 106 830Other investments and loans 15 26 868 26 434Deferred tax asset 16 30 330 20 202Non-current trade and other receivables 18 22 116 13 233

226 141 230 846

Current assetsInventories 17 763 399 611 277Trade and other receivables 18 401 695 434 122Foreign currency assets 23 10 599 6 304Tax assets 10 814 15 354Bank balances and cash 19 476 921 398 402

1 663 428 1 465 459

TOTAL ASSETS 1 889 569 1 696 305

EQUITY AND LIABILITIESCapital and reservesOrdinary share capital 20 860 837Ordinary share premium 20 95 017 85 567Preference share capital 20 265 265Preference share premium 20 4 000 4 000Retained earnings 398 848 406 467Revaluation reserve 2 014 681Foreign currency translation reserve 4 819 2 466

Equity attributable to equity holders of the parent 505 823 500 283Minority interest 69 594 80 615

Total equity 575 417 580 898

Non-current liabilitiesLong-term borrowings 21 115 805 245 330Deferred tax liabilities 16 808 469

116 613 245 799

Current liabilitiesShort-term borrowings 21 173 470 61 931Trade and other payables 22 976 556 768 298Provisions 22 11 628 6 975Foreign currency liabilities 23 5 655 —Deferred income 20 729 9 144Tax liabilities 7 029 2 652Loan from associate 13 — 329Bank overdrafts 21 2 472 20 279

1 197 539 869 608

Total liabilities 1 314 152 1 115 407

TOTAL EQUITY AND LIABILITIES 1 889 569 1 696 305

Consolidated Balance Sheetat 30 June 2006

41


Note

Ordinaryshare

capitalR000

Ordinaryshare

premiumR000

Pref-erenceshare

capitalR000

Pref-erenceshare

premiumR000

Retainedearnings

R000

Reval-uation

reserveR000

Trans-lation

reserveR000

Attri-butable

to equity holders

of the parent

R000

Minorityinterest

R000TotalR000

Balance at 1 July 2004 812 73 127 — — 389 836 — (7 783) 455 992 66 471 522 463

Effect of changes in accounting policies 32 — 2 664 — — (8 456) — 7 783 1 991 400 2 391

Restated balance at 1 July 2004 812 75 791 — — 381 380 — — 457 983 66 871 524 854

Net profit for the year — — — — 82 199 — — 82 199 13 744 95 943

Shares issued in terms of option scheme 25 8 143 — — — — — 8 168 — 8 168

Recognition of share-based payments — 1 633 — — — — — 1 633 — 1 633

Preference share issued — — 265 4 000 — — — 4 265 — 4 265

Dividends paid — — — — (57 112) — — (57 112) — (57 112)

Asset revaluation — — — — — 681 — 681 — 681

Net foreign currency translation reserve – foreign entities — — — — — — 2 466 2 466 — 2 466

Restated balance at 30 June 2005 837 85 567 265 4 000 406 467 681 2 466 500 283 80 615 580 898

Net profit for the year — — — — 61 821 — — 61 821 12 772 74 593

Shares issued in terms of option scheme 23 6 842 — — — — — 6 865 — 6 865

Recognition of share-based payments — 2 608 — — — — — 2 608 — 2 608

Dividends paid — — — — (69 440) — — (69 440) — (69 440)

Asset revaluation — — — — — 1 333 — 1 333 275 1 608

Net foreign currency translation reserve – foreign entities — — — — — — 2 353 2 353 261 2 614

Increase in investments in subsidiaries — — — — — — — — (24 329) (24 329)

Balance at 30 June 2006 860 95 017 265 4 000 398 848 2 014 4 819 505 823 69 594 575 417

Consolidated Statement of Changes in Equityfor the year ended 30 June 2006

42


Notes2006R000

2005R000

OPERATING ACTIVITIES

Cash receipts from customers 3 211 073 2 864 120

Cash paid to suppliers and employees (2 989 010) (2 744 938)

Net cash from operations 24 222 063 119 182

Investment revenues received 19 039 26 944

Finance costs paid (63 416) (55 843)

Dividends received 9 937 5 590

Dividends paid (69 440) (57 112)

Income taxes paid (19 429) (30 146)

Net cash from operating activities 98 754 8 615

INVESTING ACTIVITIES

Additions to property, plant and equipment (57 332) (98 090)

Proceeds from sale of property, plant and equipment 97 788 1 015

Proceeds on disposal of subsidiaries, net of cash disposed 25 (12) (22)

Acquisition of subsidiaries and joint ventures, net of cash acquired 26 (28 072) 6 827

Increase in investments in and loans to associates (2 623) (351)

Proceeds on disposal of investments in and loans to associates — 17 600

(Increase) decrease in investments and loans (450) 3 500

(Increase) decrease in loan to joint venture (276) 2 500

Decrease (increase) in non-current trade receivables 2 939 (3 236)

Net cash from (used in) investing activities 11 962 (70 257)

FINANCING ACTIVITIES

Proceeds on shares issued 6 865 12 433

Increase (decrease) in long-term borrowings 43 945 (10 043)

(Decrease) increase in short-term borrowings (65 199) 57 614

Decrease in bank overdrafts (17 808) (14 255)

Net cash (used in) from financing activities (32 197) 45 749

Net increase (decrease) in cash and cash equivalents 78 519 (15 893)

Cash and cash equivalents at beginning of the year 398 402 414 295

Cash and cash equivalents at end of the year 476 921 398 402

Consolidated Cash Flow Statementfor the year ended 30 June 2006

43


Notes2006R000

Restated2005R000

Revenue 2 1 360 133 1 292 149

Cost of sales (1 120 826) (1 053 397)

Gross profit 239 307 238 752

Other income 14 218 14 836


(Loss) profit from operations 3 (23 499) 25 134

Investment revenues 4 96 058 52 957

Finance costs 5 (11 351) (10 430)

Other gains and (losses) 6 417 (11 835)


Income tax benefit (expense) 7 9 195 (11 540)

Profit for the year 70 820 44 286

Company Income Statement for the year ended 30 June 2006

44


Notes2006R000

Restated2005R000

ASSETS

Non-current assets

Property, plant and equipment 10 21 661 20 481

Investments in subsidiaries 12 186 067 148 448

Investments in associates 13 12 338 11 045

Investment in joint venture 14 2 000 1 500

Other investments and loans 15 215 618 174 266

Deferred tax asset 16 23 652 13 404

Non-current trade receivables 18 10 294 13 233

471 630 382 377

Current assets

Inventories 17 300 084 293 257

Trade and other receivables 18 64 892 41 691

Foreign currency assets 23 1 092 6 353

Tax assets 10 399 10 414

Bank balances and cash 19 259 515 217 757

635 982 569 472

TOTAL ASSETS 1 107 612 951 849

EQUITY AND LIABILITIES

Capital and reserves

Ordinary share capital 20 860 837

Capital reserves 20 95 017 85 567

Preference share capital 20 265 265

Preference share premium 20 4 000 4 000

Retained earnings 313 820 312 440

Total equity 413 962 403 109

Non-current liabilities

Long-term borrowings 21 23 299 22 787

Current liabilities

Short-term borrowings 21 938 761

Trade and other payables 22 633 688 500 420

Provisions 22 4 838 4 485

Loans to subsidiaries 12 11 855 11 143

Deferred income 19 032 9 144

670 351 525 953

Total liabilities 693 650 548 740

TOTAL EQUITY AND LIABILITIES 1 107 612 951 849

Company Balance Sheetat 30 June 2006

45


Note

Ordinaryshare

capitalR000

Ordinaryshare

premiumR000

Pref-erenceshare

capitalR000

Pref-erenceshare

premiumR000

Retainedearnings

R000TotalR000

Balance at 1 July 2004 812 73 127 — — 326 737 400 676

Effect of changes in accounting policies 32 — 2 664 — — (1 471) 1 193

Restated balance at 1 July 2004 812 75 791 — — 325 266 401 869

Net profit for the year — — — — 44 286 44 286

Shares issued in terms of option scheme 25 8 143 — — — 8 168

Recognition of share-based payments — 1 633 — — — 1 633

Preference share issued — — 265 4 000 — 4 265

Dividends paid — — — (57 112) (57 112)

Balance at 30 June 2005 837 85 567 265 4 000 312 440 403 109

Net profit for the year — — — — 70 820 70 820

Shares issued in terms of option scheme 23 6 842 — — — 6 865

Recognition of share-based payments — 2 608 — — — 2 608

Dividends paid — — — — (69 440) (69 440)

Balance at 30 June 2006 860 95 017 265 4 000 313 820 413 962

Company Statement of Changes in Equityfor the year ended 30 June 2006

46


Company Cash Flow Statement for the year ended 30 June 2006

Notes2006R000

Restated2005R000

OPERATING ACTIVITIES

Cash receipts from customers 1 328 498 1 287 152

Cash paid to suppliers and employees (1 235 789) (1 241 740)

Net cash from operations 24 92 709 45 412

Interest received 6 738 11 932

Finance costs paid (11 351) (10 430)

Dividends received 49 082 4 539

Dividends paid (69 440) (57 112)

Income taxes paid (1 038) (11 497)

Net cash from (used in) operating activities 66 700 (17 156)

INVESTING ACTIVITIES

Additions to property, plant and equipment (8 761) (6 707)

Proceeds from sale of property, plant and equipment 369 144

Acquisition of subsidiaries (20 407) (1 658)

(Increase) decrease in loans to subsidiaries (3 729) 2 784

Decrease in investments in associates — (443)

Proceeds on disposal of associates — 17 600

(Increase) decrease in loans to associates (1 293) 465

(Increase) decrease in loan to joint venture (500) 2 500

Decrease (increase) in non-current trade receivables 2 939 (3 236)

(Increase) decrease in investments and loans (1 114) 3 500

Net cash (used in) from investing activities (32 496) 14 949

FINANCING ACTIVITIES

Proceeds on shares issued 6 865 12 433

Increase in long-term borrowings 512 3 307

Increase (decrease) in short-term borrowings 177 (2 846)

Decrease in bank overdrafts — (6 457)

Net cash from financing activities 7 554 6 437

Net increase in cash and cash equivalents 41 758 4 230

Cash and cash equivalents at beginning of the year 217 757 213 527

Cash and cash equivalents at end of the year 259 515 217 757

47


The financial statements have been prepared in

accordance with International Financial Reporting

Standards (IFRS).

The financial statements have been prepared on the

historical cost basis, except for certain financial

instruments, and are presented in South African

Rands. The principal accounting policies adopted are

set out below.

ADOPTION OF NEW AND REVISED

INTERNATIONAL FINANCIAL REPORTING

STANDARDS

In the current year the Group and company has

adopted all of the new and revised Standards and

Interpretations issued by the International

Accounting Standards Board (the IASB) and the

International Financial Reporting Interpretations

Committee (IFRIC) of the IASB that are relevant to

its operations and effective for accounting periods

beginning on 1 July 2005. The adoption of these new

and revised Standards and Interpretations has

resulted in changes to the Group and company’s

accounting policies in the following areas that have

affected the amounts reported for the current or

prior years (refer note 32):

IFRS 2: Share-based payments.

IFRIC 8: Scope of IFRS 2 Share-based payments.

IFRS 5: Non-current assets held for sale and

discontinued operations.

IAS 1: Presentation of financial statements.

IAS 16: Property, plant and equipment.

At the date of authorisation of these financial

statements, the following Standards and

Interpretations were in issue but not yet effective:

IFRS 6: Exploration for and evaluation of mineral

resources.

IFRS 7: Financial instruments disclosures.

IAS 21: Amendment to net investment in a

foreign entity.

IAS 39: Amendment to fair value option and

guarantees.

IFRIC 4: Determining whether an arrangement

contains a lease.

IFRIC 5: Rights to interests arising from decom-

missioning, restoration and environmental

rehabilitation funds.

IFRIC 6: Liabilities arising from participating in a

specific market – waste electrical and

electronic equipment.

IFRIC 7: Applying the restatement approach under

IAS 29 Financial reporting in hyper-

inflationary economies.

IFRIC 9: Reassessment of embedded derivatives.

IFRIC 10: Interim financial reporting and

impairment

BASIS OF CONSOLIDATION

The consolidated financial statements incorporate

the financial statements of the company and entities

(including special purpose entities) controlled by the

company (its subsidiaries). Control is achieved

where the company has the power to govern the

financial and operating policies of an entity so as to

obtain benefits from its activities.

The results of subsidiaries acquired or disposed of

during the year are included in the consolidated

income statement from the effective date of

acquisition or up to the effective date of disposal, as

appropriate.

Where necessary, adjustments are made to the

financial statements of subsidiaries to bring their

accounting policies into line with those used by other

members of the Group.

All intra-group transactions, balances, income and

expenses are eliminated on consolidation.

Minority interests in the net assets of consolidated

subsidiaries are identified separately from the

Group’s equity therein. Minority interests consist of

the amount of those interests at the date of the

original business combination (see below) and the

minority’s share of changes in equity since the date

of the combination. Losses applicable to the minority

in excess of the minority’s interest in the subsidiary’s

equity are allocated against the interests of the

Group except to the extent that the minority has a

binding obligation and is able to make an additional

investment to cover the losses.

Accounting Policiesfor the year ended 30 June 2006

48


Accounting Policiesfor the year ended 30 June 2006 (continued)

BUSINESS COMBINATIONS

The acquisition of subsidiaries is accounted for using

the purchase method. The cost of the acquisition is

measured at the aggregate of the fair values, at the

date of exchange, of assets given, liabilities incurred

or assumed, and equity instruments issued by the

Group in exchange for control of the acquiree, plus

any costs directly attributable to the business

combination. The acquiree’s identifiable assets,

liabilities and contingent liabilities that meet the

conditions for recognition under IFRS 3 are recognised

at their fair values at the acquisition date, except for

non-current assets (or disposal groups) that are

classified as held for sale in accordance with IFRS 5

Non-Current Assets Held for Sale and Discontinued

Operations, which are recognised and measured at

fair value less costs to sell.

Goodwill arising on acquisition is recognised as an

asset and initially measured at cost, being the

excess of the cost of the business combination over

the Group’s interest in the net fair value of the

identifiable assets, liabilities and contingent liabilities

recognised. If, after re-assessment, the Group’s

interest in the net fair value of the acquiree’s

identifiable assets, liabilities and contingent liabilities

exceeds the cost of the business combination, the

excess is recognised immediately in profit or loss.

The interest of minority shareholders in the acquiree

is initially measured at the minority’s proportion of

the net fair value of the assets, liabilities and

contingent liabilities recognised.

INVESTMENTS IN ASSOCIATES

An associate is an entity over which the Group has

significant influence and that is neither a subsidiary

nor an interest in a joint venture. Significant

influence is the power to participate in the financial

and operating policy decisions of the investee but is

not control or joint control over those policies.

The results and assets and liabilities of associates are

incorporated in these financial statements using the

equity method of accounting, except when the

investment is classified as held for sale, in which case

it is accounted for under IFRS 5 Non-current Assets

Held for Sale and Discontinued Operations. Under the

equity method, investments in associates are carried

in the consolidated balance sheet at cost as adjusted

for post-acquisition changes in the Group’s share of

the net assets of the associate, less any impairment

in the value of individual investments. Losses of an

associate in excess of the Group’s interest in that

associate (which includes any long-term interests

that, in substance, form part of the Group’s net

investment in the associate) are not recognised.

Any excess of the cost of acquisition over the

Group’s share of the net fair value of the identifiable

assets, liabilities and contingent liabilities of the

associate recognised at the date of acquisition is

recognised as goodwill. The goodwill is included

within the carrying amount of the investment and is

assessed for impairment as part of the investment.

Any excess of the Group’s share of the net fair value

of the identifiable assets, liabilities and contingent

liabilities over the cost of acquisition, after reassess-

ment, is recognised immediately in profit or loss.

Where a group entity transacts with an associate of the

Group, profits and losses are eliminated to the extent

of the Group’s interest in the relevant associate.

INTERESTS IN JOINT VENTURES

A joint venture is a contractual arrangement whereby

the Group and other parties undertake an economic

activity, which is subject to joint control. The results

and assets and liabilities of joint ventures are

incorporated in these financial statements using the

proportional consolidation method of accounting.

Where the Group transacts with its jointly controlled

entities, unrealised profits and losses are eliminated

to the extent of the Group’s interest in the joint

venture, except where unrealised losses provide

evidence of impairment of the asset transferred.

GOODWILL

Goodwill arising on the acquisition of a subsidiary or

a jointly controlled entity represents the excess of

the cost of acquisition over the Group’s interest in

the net fair value of the identifiable assets, liabilities

and contingent liabilities of the subsidiary or jointly

controlled entity recognised at the date of acquisition.

Goodwill is initially recognised as an asset at cost

and is subsequently measured at cost less any

accumulated impairment losses.

49


GOODWILL (continued)

For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.

On disposal of a subsidiary or a jointly controlled entity, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

The Group’s policy for goodwill arising on the acquisition of an associate is described under

‘Investments in associates’ above.

REVENUE RECOGNITION

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts and sales related taxes. Consolidated revenue excludes sales to Group companies.

Sales of goods are recognised when goods are delivered and title has passed.

Revenue for services is recognised when services are rendered.

Deferred income represents amounts received for services not yet rendered.

Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.

Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established.

LEASING

Leases are classified as finance leases whenever the

terms of the lease transfer substantially all the risks

and rewards of ownership to the lessee. All other

leases are classified as operating leases.

The Group as lessee

Assets held under finance leases are recognised as

assets of the Group at their fair value at the date of

acquisition. The corresponding liability to the lessor

is included in the balance sheet as a finance lease

obligation. Finance costs, which represent the

difference between the total leasing commitments

and the fair value of the assets acquired, are

charged to the income statement over the term of

the relevant lease so as to produce a constant

periodic rate of charge on the remaining balance of

the obligations for each accounting period.

Rentals payable under operating leases are charged

to income on a straight-line basis over the term of

the relevant lease.

FOREIGN CURRENCIES

The individual financial statements of each group

entity are presented in the currency of the primary

economic environment in which the entity operates

(its functional currency). For the purpose of the

consolidated financial statements, the results and

financial position of each entity are expressed in

Currency Units, which is the functional currency of

the company, and the presentation currency for the

consolidated financial statements.

In preparing the financial statements of the individual

entities, transactions in currencies other than the

entity’s functional currency (foreign currencies) are

recorded at the rates of exchange prevailing on the

dates of the transactions. At each balance sheet

date, monetary items denominated in foreign

currencies are retranslated at the rates prevailing on

the balance sheet date. Non-monetary items carried

at fair value that are denominated in foreign

currencies are retranslated at the rates prevailing on

the date when the fair value was determined. Non-

monetary items that are measured in terms of

historical cost in a foreign currency are not

retranslated.

50



FOREIGN CURRENCIES (continued)

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in profit or loss for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity. For such non-monetary items, any exchange component of that gain or loss is also recognised directly in equity.

In order to hedge its exposure to certain foreign exchange risks, the Group enters into forward contracts and options (see below for details of the Group’s accounting policies in respect of such derivative financial instruments).

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations (including comparatives) are expressed in Currency Units using exchange rates prevailing on the balance sheet date. Income and expense items (including comparatives) are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are classified as equity and transferred to the Group’s translation reserve. Such translation differences are recognised in profit or loss in the period in which the foreign operation is disposed of.

Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate.

RETIREMENT BENEFIT COSTS

Payments to defined contribution retirement benefit plans are charged as an expense as they fall due. Payments made to state-managed retirement benefit schemes are dealt with as payments to defined contribution plans where the Group’s obligations under the plans are equivalent to those arising in a defined contribution retirement benefit plan.

For defined benefit retirement benefit plans, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at each balance sheet

date. Actuarial gains and losses that exceed 10% of the greater of the present value of the Group’s defined benefit obligation and the fair value of plan assets are amortised over the expected average remaining working lives of the participating employees. Past service cost is recognised immediately to the extent that the benefits are already vested, and otherwise is amortised on a straight-line basis over the average period until the benefits become vested.

The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognised actuarial gains and losses and unrecognised past service cost, and as reduced by the fair value of plan assets. Any asset resulting from this calculation is limited to unrecognised actuarial losses and past service cost, plus the present value of available refunds and reductions in future contributions to the plan.

TAXATION

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

51


TAXATION (continued)

Deferred tax liabilities are recognised for taxable

temporary differences arising on investments in

subsidiaries and associates, and interests in joint

ventures, except where the Group is able to control

the reversal of the temporary difference and it is

probable that the temporary difference will not

reverse in the foreseeable future.

The carrying amount of deferred tax assets is

reviewed at each balance sheet date and reduced to

the extent that it is no longer probable that sufficient

taxable profits will be available to allow all or part of

the asset to be recovered.

Deferred tax is calculated at the tax rates that are

expected to apply in the period when the liability is

settled or the asset realised. Deferred tax is charged

or credited to profit or loss, except when it relates to

items charged or credited directly to equity, in which

case the deferred tax is also dealt with in equity.

Deferred tax assets and liabilities are offset when

there is a legally enforceable right to set off current

tax assets against current tax liabilities and when

they relate to income taxes levied by the same

taxation authority and the Group intends to settle its

current tax assets and liabilities on a net basis.

PROPERTY, PLANT AND EQUIPMENT

Land and buildings held for use in the production or

supply of goods or services, or for administrative

purposes, are stated in the balance sheet at their

revalued amounts, being the fair value at the date

of revaluation, less any subsequent accumulated

depreciation and subsequent accumulated

impairment losses. Revaluations are performed with

sufficient regularity such that the carrying amount

does not differ materially from that which would be

determined using fair values at the balance sheet

date.

Any revaluation increase arising on the revaluation of

such land and buildings is credited to the properties

revaluation reserve, except to the extent that it

reverses a revaluation decrease for the same asset

previously recognised in profit or loss, in which case

the increase is credited to profit or loss to the extent

of the decrease previously charged. A decrease in

carrying amount arising on the revaluation of such

land and buildings is charged to profit or loss to the

extent that it exceeds the balance, if any, held in the

properties revaluation reserve relating to a previous

revaluation of that asset.

Depreciation on revalued buildings is charged to

profit or loss. On the subsequent sale or retirement

of a revalued property, the attributable revaluation

surplus remaining in the properties revaluation

reserve is transferred directly to retained earnings.

All other items of plant and equipment are stated at

cost less accumulated depreciation, except for land,

which is not depreciated.

Depreciation is charged so as to write off the cost of

assets over their estimated useful lives, using the

straight-line method.

Assets held under finance leases are depreciated

over their expected useful lives on the same basis as

owned assets or, where shorter, the term of the

relevant lease.

The gain or loss arising on the disposal or retirement

of an asset is determined as the difference between

the sales proceeds and the carrying amount of the

asset and is recognised in the income statement.

INTANGIBLE ASSETS

Research costs are charged against operating profit

as incurred.

Development costs are capitalised when the following

criteria are met:

>> the product or process is clearly defined and the

costs attributable to the process or product can

be separately identified and measured reliably;

>> the technical feasibility of the product or process

can be demonstrated;

>> the enterprise intends to produce and market or

use the product or process;

>> the existence of a market or, if to be used

internally rather than sold, its usefulness to the

enterprise, can be demonstrated; and

>> adequate resources exist, or their availability

can be demonstrated, to complete the project

and market or use the product or process.

The extent of capitalisation is limited to that amount

which, taken together with further related costs, will

probably be recovered from related future economic

benefits.

52



IMPAIRMENT OF INTANGIBLE AND TANGIBLE

ASSETS, EXCLUDING GOODWILL

At each balance sheet date, the Group reviews the

carrying amounts of its tangible and intangible

assets to determine whether there is any indication

that those assets may be impaired. If any such

indication exists, the recoverable amount of the

asset is estimated in order to determine the extent

of the impairment loss (if any). Where it is not

possible to estimate the recoverable amount for an

individual asset, the recoverable amount is

determined for the cash-generating unit to which

the asset belongs.

Recoverable amount is the higher of fair value less

costs to sell and value in use. In assessing value in

use, the estimated future cash flows are discounted

to their present value using a pre-tax discount rate

that reflects current market assessments of the time

value of money and the risks specific to the asset.

If the recoverable amount of an asset (or cash-

generating unit) is estimated to be less than its

carrying amount, the carrying amount of the asset

(cash-generating unit) is reduced to its recoverable

amount. Impairment losses are recognised as an

expense immediately, unless the relevant asset is

carried at a revalued amount under another

accounting standard, in which case the impairment

loss is treated as a revaluation decrease under that

other accounting standard.

Where an impairment loss subsequently reverses,

the carrying amount of the asset (cash-generating

unit) is increased to the revised estimate of its

recoverable amount, but so that the increased

carrying amount does not exceed the carrying

amount that would have been determined had no

impairment loss been recognised for the asset

(cash-generating unit) in prior years. A reversal of

an impairment loss is recognised as income

immediately, unless the relevant asset is carried at

a revalued amount under another accounting

standard, in which case the reversal of the impairment

loss is treated as a revaluation increase under that

other accounting standard.

INVENTORIES

Inventories are stated at the lower of cost or net

realisable value. Cost comprises direct materials

and, where applicable, direct labour costs and those

overheads that have been incurred in bringing the

inventories to their present location and condition.

Cost is calculated using the weighted average

method. Net realisable value represents the

estimated selling price less all estimated costs to

completion and costs to be incurred in marketing,

selling and distribution.

FINANCIAL INSTRUMENTS

Financial assets and financial liabilities are recognised

on the Group’s balance sheet when the Group

becomes a party to the contractual provisions of the

instrument.

Trade receivables

Trade receivables are measured at initial recognition

at fair value, and are subsequently measured at

amortised cost using the effective interest rate

method. Appropriate allowances for estimated

irrecoverable amounts are recognised in profit or

loss when there is objective evidence that the asset

is impaired. The allowance recognised is measured

as the difference between the asset’s carrying

amount and the present value of estimated future

cash flows discounted at the effective interest rate

computed at initial recognition.

Investments

Investments are recognised and derecognised on a

trade date basis where the purchase or sale of an

investment is under a contract whose terms require

delivery of the investment within the timeframe

established by the market concerned, and are

initially measured at fair value, plus directly

attributable transaction costs.

53


FINANCIAL INSTRUMENTS (continued)

Investments (continued)

At subsequent reporting dates, debt securities that

the Group has the expressed intention and ability to

hold to maturity (held-to-maturity debt securities)

are measured at amortised cost using the effective

interest rate method, less any impairment loss

recognised to reflect irrecoverable amounts. An

impairment loss is recognised in profit or loss when

there is objective evidence that the asset is impaired,

and is measured as the difference between the

investment’s carrying amount and the present value

of estimated future cash flows discounted at the

effective interest rate computed at initial recognition.

Impairment losses are reversed in subsequent

periods when an increase in the investment’s

recoverable amount can be related objectively to an

event occurring after the impairment was recognised,

subject to the restriction that the carrying amount of

the investment at the date the impairment is

reversed shall not exceed what the amortised cost

would have been had the impairment not been

recognised.

Investments other than held-to-maturity debt

securities are classified as either investments held for

trading or as available-for-sale, and are measured at

subsequent reporting dates at fair value. Where

securities are held for trading purposes, gains and

losses arising from changes in fair value are included

in profit or loss for the period. For available-for-sale

investments, gains and losses arising from changes in

fair value are recognised directly in equity, until the

security is disposed of or is determined to be impaired,

at which time the cumulative gain or loss previously

recognised in equity is included in the profit or loss for

the period. Impairment losses recognised in profit or

loss for equity investments classified as available-for-

sale are not subsequently reversed through profit or

loss. Impairment losses recognised in profit or loss for

debt instruments classified as available-for-sale are

subsequently reversed if an increase in the fair value

of the instrument can be objectively related to an

event occurring after the recognition of the impairment

loss.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand

and demand deposits, and other short-term highly

liquid investments that are readily convertible to a

known amount of cash and are subject to an

insignificant risk of changes in value.

Financial liabilities and equity

Financial liabilities and equity instruments issued by

the Group are classified according to the substance

of the contractual arrangements entered into and

the definitions of a financial liability and an equity

instrument. An equity instrument is any contract

that evidences a residual interest in the assets of the

Group after deducting all of its liabilities. The

accounting policies adopted for specific financial

liabilities and equity instruments are set out below.

Bank borrowings

Interest-bearing bank loans and overdrafts are

initially measured at fair value, and are subsequently

measured at amortised cost, using the effective

interest rate method. Any difference between the

proceeds (net of transaction costs) and the settlement

or redemption of borrowings is recognised over the

term of the borrowings in accordance with the

Group’s accounting policy for borrowing costs (see

above).

Trade payables

Trade payables are initially measured at fair value,

and are subsequently measured at amortised cost,

using the effective interest rate method.

Equity instruments

Equity instruments issued by the company are

recorded at the proceeds received, net of direct

issue costs.

Derivative financial instruments

The Group’s activities expose it primarily to the

financial risks of changes in foreign exchange rates

and interest rates.

The Group uses derivative financial instruments

(primarily foreign currency forward contracts) to

hedge its risks associated with foreign currency

fluctuations relating to certain firm commitments

and forecasted transactions. The significant interest

rate risk arises from bank loans.

54



FINANCIAL INSTRUMENTS (continued)

Derivative financial instruments (continued)

The use of financial derivatives is governed by the

Group’s policies approved by the board of directors,

which provide written principles on the use of

financial derivatives consistent with the Group’s risk

management strategy. The Group does not use

derivative financial instruments for speculative

purposes.

Derivative financial instruments are initially measured

at fair value on the contract date, and are remeasured

to fair value at subsequent reporting dates.

Derivatives embedded in other financial instruments

or other non-financial host contracts are treated as

separate derivatives when their risks and

characteristics are not closely related to those of the

host contract and the host contract is not carried at

fair value with unrealised gains or losses reported in

profit or loss.

Interest rate swaps

The carrying amounts of interest rate swaps, which

comprise net interest receivables and payables

accrued, are included in trade receivables and trade

payables, respectively. Payments and receipts under

interest rate swap contracts are recognised in the

income statement on a basis consistent with

corresponding fluctuations in the interest payments

on floating rate financial liabilities.

Redeemable preference shares

Preference shares, which are redeemable on a

specific date or at the option of the shareholder, are

presented in long-term liabilities. The dividends

received on preference shares are recognised as

investment income. The dividends paid on preference

shares are recognised as finance costs.

PROVISIONS

Provisions are recognised when the Group has a

present obligation as a result of a past event, and it

is probable that the Group will be required to settle

that obligation. Provisions are measured at the

directors’ best estimate of the expenditure required

to settle the obligation at the balance sheet date,

and are discounted to present value where the effect

is material.

SEGMENTS

All segment revenue and expenses are directly

attributable to the segments. Segment assets include

all operating assets used by a segment and segment

liabilities include all operating liabilities. These

assets and liabilities are all directly attributable to

the segments. Segment revenue, expenses and

result include transfers between business segments

(primary segments) and between geographical

segments (secondary segments). Such transfers are

accounted for at competitive market prices charged

to unaffiliated customers for similar goods. These

transfers are eliminated on consolidation.

BORROWING COSTS

Borrowing costs are expensed as incurred.

SHARE-BASED PAYMENTS

The Group issues equity-settled share options to

certain employees. Equity-settled share-based

payments are measured at fair value (excluding the

effect of non-market-based vesting conditions) at

the date of grant. The fair value determined at the

grant date of the equity-settled share-based

payments is expensed on a straight-line basis

over the vesting period, based on the Group’s

estimate of the shares that will eventually vest and

adjusted for the effect of non-market-based vesting

conditions.

Fair value is measured using the a binomial

tree that adheres to all the Black-Scholes option

pricing principles. The expected life used in

the model has been adjusted, based on

management’s best estimate, for the effects

of non-transferability, exercise restrictions and

behavioural considerations.

55


COMPARATIVES

Certain comparative disclosure has been adjusted.

See note 32 for a detailed list of the changes.

Additional comparative disclosures have been added

to ensure compliance with new accounting

standards.

CRITICAL ACCOUNTING JUDGEMENTS AND

KEY SOURCES OF ESTIMATION

In the process of applying the entities accounting

policies, which are described above, management

has made the following judgements that have the

most significant effect on the amounts recognised in

the financial statements (apart from those involving

estimations, which are dealt with below):

>> Revenue recognition (refer note 2) and

>> Residual values and useful lives of property,

plant and equipment (refer note 10).

The key assumptions concerning the future, and

other key sources of estimation uncertainty at the

balance sheet date, that have a significant risk of

causing a material adjustment to the carrying

amounts of assets and liabilities within the next

financial year are:

>> impairment of goodwill (refer note 11),

>> valuation of investments (refer report of the

directors),

>> inventory provisions (refer note 17),

>> recoverability of accounts receivable (refer note

18) and

>> bonus and leave pay provisions (refer note 22).

56


1. SEGMENTAL REPORTINGBUSINESS SEGMENTS

For management purposes, the Group is currently organised into the following segments and these segments are the basis on which the Group reports its primary segment information:

Mecer Assembly and distribution of Mecer branded computer products.

Rectron Distribution of computer components and peripherals.

Brotek Distribution of Brother computer and printer products and those of other international brands.

Comztek Distribution of networking equipment and related software licences.

Investments Strategic investments in technology entities include investments in, associates and other investments and loans. Refer Annexure B and C for more information about their activities.

2006

REVENUEMecerR000

RectronR000

BrotekR000

ComztekR000

Invest-mentsR000

Elimina-tionsR000

TotalR000

External sales 1 473 251 1 192 043 137 034 254 123 — — 3 056 451

Inter-segment sales 14 661 74 771 9 133 2 665 — (101 230) —

Total revenue from continuing operations 1 487 912 1 266 814 146 167 256 788 — (101 230) 3 056 451

SEGMENT RESULTS


EBITDA* 32 451 55 447 26 788 13 267 — — 127 953

Depreciation (7 596) (11 078) (195) (493) — — (19 362)

Amortisation of intangible assets (296) — — — — — (296)

Share of profit of associates — — — 193 4 467 — 4 660

Profit from operations 24 559 44 369 26 593 12 967 4 467 — 112 955

Investment revenues 25 507 962 2 280 680 — (483) 28 946

Finance costs (41 267) (18 916) (17) (4 129) — 483 (63 846)

Other losses (see note 6) — — — (298) (326) — (624)

Profit before tax 8 799 26 415 28 856 9 220 4 141 — 77 431

Income tax benefit (expense) 3 998 (9 089) (8 326) (2 311) (238) — (15 966)

Profit for the year from continuing operations 12 797 17 326 20 530 6 909 3 903 — 61 465


Profit for the year from discontinued operations — 13 128 — — — — 13 128

Profit for the year 12 797 30 454 20 530 6 909 3 903 — 74 593

*EBITDA – earnings before interest, taxation, depreciation and amortisation.

Notes to the Annual Financial Statementsfor the year ended 30 June 2006

57


1. SEGMENTAL REPORTING (continued)

BUSINESS SEGMENTS (continued)

2005

REVENUE

Restated MecerR000

Restated Rectron

R000

Restated Brother

R000

Restated Comztek**

R000

Invest-mentsR000

Elimina-tion

R000

Restated TotalR000

External sales 1 391 733 1 154 488 127 212 168 854 — — 2 842 287

Inter-segment sales 6 554 18 714 4 126 1 722 — (31 116) —

Total revenue from continuing operations 1 398 287 1 173 202 131 338 170 576 — (31 116) 2 842 287

SEGMENT RESULTS


EBITDA 94 980 69 159 12 801 5 889 — — 182 829

Depreciation (9 376) (5 169) (251) (387) — — (15 183)

Amortisation of intangible assets (564) — — — — — (564)

Income (loss) from associates — — — 103 (670) — (567)

Profit from operations 85 040 63 990 12 550 5 605 (670) — 166 515

Investment revenues 18 589 8 729 3 508 2 074 — (395) 32 505

Finance costs (32 994) (18 774) (17) (4 953) — 395 (56 343)

Other (losses) and gains (see note 6) (75) — — — 2 324 — 2 249

Profit before tax 70 560 53 945 16 041 2 726 1 654 — 144 926

Income tax expense (13 730) (18 448) (5 067) (371) (5 191) — (42 807)

Profit for the year from continuing operations 56 830 35 497 10 974 2 355 (3 537) — 102 119


Loss for the year from discontinued operations — (6 176) — — — — (6 176)

Profit for the year 56 830 29 321 10 974 2 355 (3 537) — 95 943

**Comztek’s results have been proportionately consolidated (44,7%) from 1 October 2004. See note 14 for more information.

Notes to the Annual Financial Statementsfor the year ended 30 June 2006 (continued)

58



BUSINESS SEGMENTS (continued)

2006MecerR000

RectronR000

BrotherR000

ComztekR000

Invest-mentsR000

Elimina-tionsR000

TotalR000

OTHER INFORMATION

Capital expenditure 9 232 46 416 293 1 391 — — 57 332

ASSETS

Segment assets 1 001 620 656 189 70 312 102 169 38 506 (18 598) 1 850 198

Investment in associates — — — 770 27 787 — 28 557

Consolidated total assets 1 001 620 656 189 70 312 102 939 66 293 (18 598) 1 878 755

LIABILITIES

Segment liabilities 754 789 464 066 18 938 87 928 — (18 598) 1 307 123

Number of employees at year-end 680 341 45 139 — — 1 205

2005

OTHER INFORMATION

Capital expenditure 8 462 89 421 79 128 — — 98 090

ASSETS

Segment assets 911 311 547 457 85 900 88 674 29 639 (3 633) 1 659 348

Investment in associates — — — 109 21 494 — 21 603

Consolidated total assets 911 311 547 457 85 900 88 783 51 133 (3 633) 1 680 951

LIABILITIES

Segment liabilities 631 148 390 273 12 369 82 598 — (3 633) 1 112 755

Number of employees at year-end 671 315 49 127 — — 1 162

59



GEOGRAPHICAL SEGMENTS

2006 Mecer South

AmericaR000

Mecer East

AfricaR000

Rectron Australia

R000

RectronUK

R000

Comztek AfricaR000

South Africa

R000TotalR000


Revenue 115 599 12 761 119 424 — 5 378 2 803 289 3 056 451

(Loss) profit for the year from continuing operations (12 161) (243) 853 — (296) 73 312 61 465


Profit (loss) for the year from discontinued operations — — — 13 452 — (324) 13 128

(Loss) profit for the year (12 161) (243) 853 13 452 (296) 72 988 74 593

OTHER INFORMATION

Capital expenditure 35 342 13 769 — 16 43 170 57 332

Total assets 74 908 12 878 47 825 — 928 1 753 030 1 889 569

2005 (Restated)

Revenue 79 826 12 336 104 965 — 10 129 2 635 031 2 842 287


(Loss) profit for the year from continuing operations (3 255) (640) 621 — (1 627) 107 020 102 119


(Loss) profit for the year from discontinued operations — — — (6 581) — 405 (6 176)

Profit for the year (3 255) (640) 621 (6 581) (1 627) 107 425 95 943

OTHER INFORMATION

Capital expenditure 908 411 321 473 51 95 926 98 090

Total assets 52 921 8 755 36 215 25 386 1 644 1 571 384 1 696 305


60


GROUPContinuing operations

GROUPDiscontinued operations

GROUP

Total

COMPANY

2006R000

2005R000

2006R000

2005R000

2006R000

2005R000

2006R000

2005R000

2. REVENUEAn analysis of the Group and company’s revenue for the year from continuing and discontinued operations, is as follows:

Sales of goods 3 051 169 2 837 527 143 755 99 957 3 194 924 2 937 484 1 356 176 1 289 091

Rendering of services 5 282 4 760 — — 5 282 4 760 3 957 3 058

3 056 451 2 842 287 143 755 99 957 3 200 206 2 942 244 1 360 133 1 292 149

The directors considered whether the recognition of the revenue in the current year is appropriate, taking into account the detailed criteria for the recognition of revenue from the sale of goods set out in IAS 18 Revenue and, in particular, whether the Group had transferred to the buyer the significant risks and rewards of ownership of the goods.

3. PROFIT (LOSS) FROM OPERATIONSProfit (loss) from operations for continuing and discontinued operations has been arrived at after taking the following items into account:

Auditors’ remuneration:

Audit fees 3 917 3 188 123 81 4 040 3 269 2 273 1 795

Fees for other services 1 146 1 323 — 1 1 146 1 324 601 827

Under (over) provision in previous years 9 22 — — 9 22 (20) 57

Expenses 9 84 — — 9 84 9 80

5 081 4 617 123 82 5 204 4 699 2 863 2 759

Staff costs 133 335 119 964 3 520 4 285 136 855 124 249 80 465 73 112

61




GROUP

Total

COMPANY

2006R000

2005R000

2006R000

2005R000

2006R000

2005R000

2006R000

2005R000

3. PROFIT (LOSS) FROM OPERATIONS (continued)

Depreciation of property, plant and equipment:

Land and buildings 186 129 — — 186 129 — —

Improvements to leased premises 4 913 2 587 52 68 4 965 2 655 1 282 1 227

Plant and machinery 1 472 181 — — 1 472 181 75 103

Furniture, fixtures and office equipment 4 110 2 633 103 118 4 213 2 751 970 974

Computer equipment 6 983 7 528 125 128 7 108 7 656 4 435 5 659

Motor vehicles 1 605 1 203 39 29 1 644 1 232 485 360

Capitalised leased furniture, fixtures and office equipment 13 25 — — 13 25 — —

Capitalised leased computer equipment — 725 — — — 725 — 725

Capitalised leased motor vehicles 80 172 — — 80 172 — —

19 362 15 183 319 343 19 681 15 526 7 247 9 048

Amortisation:

Software 296 564 — — 296 564 — —

Net profit (loss) on disposal of property, plant and equipment:

Land and buildings 4 718 — — — 4 718 — — —

Improvements to leased premises (9) (2) (183) — (192) (2) (8) (2)

Plant and machinery — (11) — — — (11) —

Furniture, fixtures and office equipment (16) (10) (211) — (227) (10) 28 10

Computer equipment (261) 10 (65) — (326) 10 — (2)

Motor vehicles (140) (20) (59) — (199) (20) 15 2

Capitalised leased motor vehicles (32) (108) — — (32) (108) — —

4 260 (141) (518) — 3 742 (141) 35 8

Fees for services:

Administrative 58 67 — — 58 67 — 67

Managerial 23 — — — 23 — — —

Secretarial 16 5 — — 16 5 10 —

Technical 1 521 2 043 — — 1 521 2 043 — 30

1 618 2 115 — — 1 618 2 115 10 97


62




GROUP

Total

COMPANY

2006R000

2005R000

2006R000

2005R000

2006R000

2005R000

2006R000

2005R000

3. PROFIT (LOSS) FROM OPERATIONS (continued)

Operating lease expenses:

Land and buildings 24 712 23 378 1 665 1 551 26 377 24 929 16 211 16 211

Furniture, fixtures, office and computer equipment 281 1 545 45 83 326 1 628 — 1 290

Motor vehicles 280 — — — 280 — — —

Plant and machinery 384 462 — — 384 462 — —

25 657 25 385 1 710 1 634 27 367 27 019 16 211 17 501

Pension contributions 7 223 6 199 7 3 7 230 6 202 3 955 3 305

Foreign exchange (losses) gains:

Realised 18 544 (3 585) — (405) 18 544 (3 990) 6 612 1 903

Unrealised (69 517) (21 199) — (272) (69 517) (21 471) (41 276) (7 626)

(50 973) (24 784) — (677) (50 973) (25 461) (34 664) (5 723)

Fair value adjustments:

Open foreign exchange contracts gain 4 945 6 304 — — 4 945 6 304 1 092 6 353

Interest rate swap derivative (loss) gain (8 434) 3 459 — — (8 434) 3 459 (8 434) 3 459

(3 489) 9 763 — — (3 489) 9 763 (7 342) 9 812

63




GROUPTotal COMPANY

2006R000

2005R000

2006R000

2005R000

2006R000

2005R000

2006R000

2005R000

4. INVESTMENT REVENUESInterest received on bank balances and cash 11 190 19 826 30 29 11 220 19 855 4 794 7 438

Other interest received 7 819 7 089 — — 7 819 7 089 — —

Interest received from subsidiaries and joint venture — — — — — — 1 944 4 494

Preference dividends received (see note 18 pertaining to set-off against interest paid at consolidated level) — — — — — — 40 238 36 486

Dividends received from short-term dividend only unit trusts 9 937 5 590 — — 9 937 5 590 7 709 4 539

Dividends from subsidiaries — — — — — — 41 373 —

28 946 32 505 30 29 28 976 32 534 96 058 52 957

5. FINANCE COSTSInterest paid on bank overdrafts 4 918 7 903 220 150 5 138 8 053 1 585 4 279

Interest paid on loans 92 317 82 384 — — 92 317 82 384 — 316

Preference dividends received (see note 18 pertaining to set-off against interest paid at company level) (48 112) (43 400) — — (48 112) (43 400) — —

Trade finance commission 12 351 8 806 — — 12 351 8 806 9 643 5 799

Other interest paid 2 372 650 — — 2 372 650 123 36

63 846 56 343 220 150 64 066 56 493 11 351 10 430


64



GROUP

Total

COMPANY

2006R000

2005R000

2006R000

2005R000

2006R000

2005R000

6. OTHER (LOSSES) AND GAINSFair valuation (loss) gain on investments and loans (see note 15) (326) 16 729 (326) 16 729 — —

Impairment of investment in subsidiary (see note 12) — — — — — (2 948)

Reversal of (writing-off) subsidiary loan (see note 12) — — — — 417 (13 664)

Profit on disposal of associates (see note 24) — 2 239 — 2 239 — 10 400

Impairment of associates (see note 13) — (10 793) — (10 793) — (4 189)

Impairment of goodwill (see note 11) (298) (5 852) (298) (5 852) — —

Profit on disposal of shares in other businesses (see note 24) — 1 360 — 1 360 — —

Surety obligations settled — (1 434) — (1 434) — (1 434)

(624) 2 249 (624) 2 249 417 (11 835)

65




GROUP

Total

COMPANY

2006R000

2005R000

2006R000

2005R000

2006R000

2005R000

2006R000

2005R000

7. INCOME TAX (EXPENSE) BENEFITSouth African normal tax (14 739) (41 869) (197) 70 (14 936) (41 799) 9 195 (11 540)

Foreign tax (1 227) (938) — — (1 227) (938) — —

(15 966) (42 807) (197) 70 (16 163) (42 737) 9 195 (11 540)

Comprising:

Normal current tax – Current year (22 707) (29 231) — — (22 707) (29 231) — (6 765)

– Prior year (467) (3 352) — — (467) (3 352) (1 053) 110

– Current year 6 059 (4 499) (197) 70 5 862 (4 429) 4 628 (2 727)

Normal deferred tax

– Prior year 747 (104) — — 747 (104) (192) 1

– Rate change — (457) — — — (457) — (302)

Secondary tax on companies

– Current tax (5 172) — — — (5 172) — — —

– Deferred tax 5 812 (1 857) — — 5 812 (1 857) 5 812 (1 857)Capital gains tax– Current tax — (64) — — — (64) — —– Deferred tax (238) (3 243) — — (238) (3 243) — —

Income tax (expense) benefit for the year (15 966) (42 807) (197) 70 (16 163) (42 737) 9 195 (11 540)

% % % %

Tax rate reconciliation

South African statutory rate of tax 29,0 29,0 29,0 29,0

Dividends received (18,6) (10,2) (42,7) (21,3)

Secondary tax on companies (0,7) 1,3 (9,4) 3,3

Tax effect of share of results of associates (1,5) 0,1 — —

Capital profit inclusion rate and base cost adjustment 0,3 2,3 — 0,8

Current tax prior year under (over) provision 0,5 2,4 1,7 (0,2)

Deferred tax prior year (over) under provision (0,8) 0,1 0,3 —

Change in rate — 0,3 — 0,5

Disallowed expenses 9,6 5,5 6,2 8,6

Effective rate of tax 17,8 30,8 (14,9) 20,7


66


8. DISCONTINUED OPERATIONSOn 1 April 2006, the Group discontinued the operations of Rectron Plc and Axper Technologies (Pty) Limited (previously IT Depot (Pty) Limited.)

The profit for the year from the discontinued operations is analysed as follows:

GROUP

2006R000

2005R000

Current year loss of Rectron Plc and Axper Technologies (Pty) Limited (6 003) (10 109)

Gain on discontinuance (see note 25) 19 131 3 933

Group’s share of profit (loss) on disposal of subsidiaries 13 128 (6 176)

The results of the discontinued operations for the period from 1 July 2005 to 31 March 2006 are as follows:

Revenue 143 755 99 957

Cost of sales (138 456) (98 534)

Gross profit 5 299 1 423

Other income — 272


Loss from operations (5 616) (10 058)

Investment revenue 30 29

Finance costs (220) (150)

Loss before tax (5 806) (10 179)

Income tax (expense) benefit (197) 70

Loss for the year (6 003) (10 109)

The carrying amounts of the assets and liabilities of the discontinued operations at the date of disposal are disclosed in note 25.

9. EARNINGS PER SHAREFrom continuing and discontinued operations

The calculation of the basic and headline earnings per share is based on the following data:

Basic earnings (profit for the year attributable to equity holders of the parent) 61 821 82 199

Impairment of goodwill (see note 11) 298 5 852

Group’s share of profit on disposal of subsidiaries and other businesses (12 596) (3 950)

Profit on disposal of associate — (2 239)

Group’s share of profit on disposal of property, plant and equipment (2 465) 141

Impairment of associates (see note 13) — 10 793

Headline earnings 47 058 92 796

Number of shares 000 000

Weighted average number of ordinary shares for the purposes of basic earnings per share 106 596 103 724

Effect of dilutive potential ordinary shares – share options 2 011 3 970

Weighted average number of ordinary shares for the purposes of diluted earnings per share 108 607 107 694

At year-end 11 419 215 (2005: 6 490 237) share options were outstanding exercisable over the next 5 (2005: 4) years at a weighted average price of R8,42 per share (2005: R3,44 per share). The weighted average market price for the 2006 year was R10,22 per share (2005: R8,87 per share).

67


9. EARNINGS PER SHARE (continued)

From continuing operations

The calculation of the basic and headline earnings per share from continuing operations attributable to the ordinary equity holders of the parent entity is based on the following data:

GROUP

Earnings2006R000

2005R000

Basic earnings (profit for the year attributable to equity holders of the parent) 61 821 82 199

Less Group’s share of (profit) loss for the year from discontinued operations (8 643) 4 066

Basic earnings from continuing operations 53 178 86 265

Impairment and amortisation of goodwill (see note 11) 298 5 852

Profit on disposal of subsidiaries and other businesses — (1 360)

Group’s share of profit on disposal of property, plant and equipment (2 465) 141

Profit on disposal of associate — (2 239)

Impairment of associates (see note 13) — 10 793

Headline earnings from continuing operations 51 011 99 452

Earnings per share Cents Cents

From continuing and discontinued operations:

Headline earnings per ordinary share 44,15 89,46


Diluted headline earnings per ordinary share 43,33 86,17


From continuing operations:

Headline earnings per ordinary share 47,85 95,88


Diluted headline earnings per ordinary share 46,97 92,35


From discontinued operations:

Headline earnings per ordinary share (3,70) (6,42)

Basic earnings per ordinary share 8,11 (3,92)

Diluted headline earnings per ordinary share (3,64) (6,18)

Diluted basic earnings per ordinary share 7,96 (3,77)


68


10. PROPERTY, PLANT AND EQUIPMENT

GROUP — 2006

Cost

Opening balance

R000Additions

R000Disposals

R000

Revalu-ationsR000

Exchangediffer-encesR000

Sub-sidiaries acquired

R000

Closing balance

R000

Land and buildings 91 574 27 165 (90 282) 1 969 — 13 333 43 759

Improvements to leased premises 18 057 1 848 (346) — (33) — 19 526

Plant and machinery 8 520 2 640 — — — — 11 160

Furniture, fixtures and office equipment 25 866 12 696 (1 335) — 151 10 37 388

Computer equipment 55 399 8 411 (907) — (8) 12 62 907

Motor vehicles 14 035 4 572 (3 989) — 19 46 14 683

Capitalised leased furniture, fixtures and office equipment 514 — — — 1 456 — 1 970

Capitalised leased computer equipment 9 486 — (9 486) — — — —

Capitalised leased motor vehicles 357 — (114) — — — 243

223 808 57 332 (106 459) 1 969 1 585 13 401 191 636

Accumulated depreciation

Restated opening balance

R000

Current yearR000

DisposalsR000

Exchange differ-encesR000

Sub-sidiaries

acquiredR000

Closing balance

R000

Land and buildings 129 186 — 10 — 325

Improvements to leased premises 7 734 4 965 (149) (10) — 12 540

Plant and machinery 1 236 1 472 — — — 2 708

Furniture, fixtures and office equipment 14 145 4 213 (1 056) 39 1 17 342

Computer equipment 42 363 7 108 (829) (6) 2 48 638

Motor vehicles 4 218 1 644 (1 622) 35 6 4 281

Capitalised leased furniture, fixtures and office equipment 148 13 — — — 161

Capitalised leased computer equipment 8 700 — (8 700) — — —

Capitalised leased motor vehicles 189 80 (57) — — 212

78 862 19 681 (12 413) 68 9 86 207

69


10. PROPERTY, PLANT AND EQUIPMENT (continued)

COMPANY — 2006

Cost

Opening balance

R000Additions

R000Disposals

R000

Closing balance

R000

Land and buildings 711 — — 711

Improvements to leased premises 9 133 187 (28) 9 292

Plant and machinery 1 055 915 — 1 970

Furniture, fixtures and office equipment 9 632 653 (325) 9 960

Computer equipment 40 209 4 532 (18) 44 723

Motor vehicles 4 810 2 474 (904) 6 380

Capitalised leased computer equipment 8 700 — (8 700) —

74 250 8 761 (9 975) 73 036



R000

Current year

R000Disposals

R000

Closing balance

R000

Improvements to leased premises 3 772 1 282 (20) 5 034

Plant and machinery 923 75 — 998



Motor vehicles 969 485 (615) 839

Capitalised leased computer equipment 8 700 — (8 700) —

53 769 7 247 (9 641) 51 375


70



GROUP – 2005

Cost

Opening balance

R000Additions

R000Disposals

R000

Revalu-ationsR000


Sub-sidiaries

acquiredR000

Closing balance

R000

Land and buildings 16 352 74 263 — 959 — — 91 574

Improvements to leased premises 17 785 236 (12) — 20 28 18 057

Plant and machinery 1 697 6 964 (141) — — — 8 520

Furniture, fixtures and office equipment 21 118 4 882 (507) — 140 233 25 866

Computer equipment 45 873 9 263 (778) — 29 1 012 55 399

Motor vehicles 12 232 2 185 (570) — 135 53 14 035

Capitalised leased furniture, fixtures and office equipment 514 — — — — — 514

Capitalised leased computer equipment 9 486 — — — — — 9 486

Capitalised leased motor vehicles 327 297 (267) — — — 357

125 384 98 090 (2 275) 959 324 1 326 223 808


Restatedopening balance

R000

Restated current

yearR000

Restated disposals

R000


Sub-sidiariesacquired

R000

Restated closing

balanceR000

Land and buildings — 129 — — — 129

Improvements to leased premises 5 080 2 655 (10) 4 5 7 734

Plant and machinery 1 083 181 (28) — — 1 236

Furniture, fixtures and office equipment 11 419 2 751 (171) 85 61 14 145

Computer equipment 34 920 7 656 (574) 21 340 42 363

Motor vehicles 3 098 1 232 (192) 65 15 4 218

Capitalised leased furniture, fixtures and office equipment 123 25 — — — 148

Capitalised leased computer equipment 7 975 725 — — — 8 700

Capitalised leased motor vehicles 175 172 (158) — — 189

63 873 15 526 (1 133) 175 421 78 862

71



COMPANY – 2005

Cost

Opening balance

R000Additions

R000Disposals

R000

Closing balance

R000

Land and buildings 658 53 — 711

Improvements to leased premises 9 034 111 (12) 9 133

Plant and machinery 1 027 28 — 1 055



Motor vehicles 4 499 412 (101) 4 810

Capitalised leased computer equipment 8 700 — — 8 700

67 969 6 707 (426) 74 250



R000

Restated current

year R000

Restated disposals

R000

Restated closing balance

R000

Improvements to leased premises 2 555 1 227 (10) 3 772

Plant and machinery 820 103 — 923



Motor vehicles 660 360 (51) 969

Capitalised leased computer equipment 7 975 725 — 8 700

45 011 9 048 (290) 53 769


72


GROUP COMPANY

2006 R000

2005 R000

2006 R000

2005 R000


COMPANY – 2005

Net book value

Land and buildings 43 434 91 445 711 711

Improvements to leased premises 6 986 10 323 4 258 5 361

Plant and machinery 8 452 7 284 972 132

Furniture, fixtures and office equipment 20 046 11 721 2 768 3 121

Computer equipment 14 269 13 036 7 411 7 315

Motor vehicles 10 402 9 817 5 541 3 841

Capitalised leased furniture, fixtures and office equipment 1 809 366 — —

Capitalised leased computer equipment — 786 — —

Capitalised leased motor vehicles 31 168 — —

105 429 144 946 21 661 20 481

Capitalised leased items are encumbered as security for a liability of R1 232 000 (2005: 397 000) (see note 21).

Land and buildings are encumbered as security for a liability of R12 848 000 (2005: R38 765 000).

Land and buildings were revalued during the year by independent valuers not connected with the Group, by reference to market evidence of recent transactions for similar properties. The valuations conforms to International Valuation Standards.

At 30 June 2006, had the land and buildings been carried at historical cost less accumulated depreciation and accumulated impairment losses, the carrying amount would have been approximately R41,4 million (2005: R90,5 million).

A register of land and buildings and details on the valuers and the dates of the valuations are available at the registered office of the company.

The following estimated useful lives are used for the depreciation of property, plant and equipment:

Improvements to leased premises over period of the initial lease

Plant and machinery 5 years

Furniture, fixtures and office equipment 5 – 10 years

Computer equipment 3 years

Motor vehicles 5 years

During the period, the Group carried out a review of the recoverable amount of its plant and equipment, having regard to its ongoing programme of modernisation and the introduction of new product lines. The recoverable amount of the relevant assets has been determined on the basis of their value in use.

The directors reviewed the residual values, useful lives and carrying amount of its property, plant and equipment and intangible assets to determine the appropriate level of depreciation and whether there is any indication that those assets have suffered an impairment loss. The directors judged a residual value of zero as a result of the fact that plant and equipment are not held for trading and are normally scrapped. The residual value of land and buildings normally exceeds the original costs. Land is not depreciated. Buildings are revalued in terms of the accounting policy. The revalued amounts did not exceed the estimates’ residual values of the buildings.

73


GROUP

2006 R000

2005 R000

11. INTANGIBLE ASSETSGoodwill

Cost 17 788 9 057

At the beginning of the year 9 057 67 337

Elimination of accumulated amortisation with the adoption of IFRS 3 — (63 586)

Arising on acquisition of subsidiaries 8 731 5 946

Eliminated on disposal of subsidiaries and other businesses — (640)

Accumulated impairments (6 150) (5 852)

At the beginning of the year (5 852) (63 586)

Elimination of accumulated amortisation with the adoption of IFRS 3 — 63 586

Impairment charge (298) (5 852)

Carrying amount 11 638 3 205

Software

Cost 15 689 15 689

At the beginning of the year 15 689 11 271

Acquisition of subsidiary — 4 418

Incurred during the year — —

Accumulated amortisation (15 592) (15 296)

At the beginning of the year (15 296) (10 745)

Acquisition of subsidiary — (3 987)

Charge for the year (296) (564)

Carrying amount 97 393

Total 11 735 3 598

Software is written-off on a straight-line basis over three years.

Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units that are expected to benefit from that business combination. The carrying amount of goodwill had been allocated as follows:

Mecer Free State Province (Proprietary) Limited 3 205 3 205

Brotek (Proprietary) Limited 7 965 —

Mecer East Africa Limited 468 —

11 638 3 205


74


11. INTANGIBLE ASSETS (continued)

The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired.

The recoverable amounts of the cash generating units are determined based on fair value less costs to sell. Fair value less costs to sell is determined using an observable market price.

The recoverable amounts of the cash generating units were determined from value-in-use calculations. The key assumptions for the value-in-use calculations are those regarding discount rates, expected volume growth rates, and expected changes to selling prices and direct costs. Management estimates discount rates using pre-tax rates that reflect management’s assessment of the time value of money and their views on the risks specific to the cash generating units. The growth rates are based on management experience and their expectations of industry and market share growth. Expectation of changes in gross margins and changes in indirect costs are based on past practices, expectations of future changes in the market and a view on expected inflation rates.

Management prepared a five-year cash flow forecast using the 2006 financial year performance and the approved 2007 financial year budget based on an estimated 3%, maintaining current gross margins, applying an expected inflation rate of 5% to indirect expenses and using a discount rate of 18%.

The Group fully impaired R0,3 million (2005: R4,3 million) of goodwill arising on acquisitions.

On 1 July 2005, Mustek acquired the remaining 30% of Brotek (Pty) Limited (Brotek). Shortly thereafter, Mustek sold the 30%, that it just acquired, to Puno Printing Solutions (Pty) Limited (Puno). In order to finance the transaction, Puno borrowed the consideration amount from Mustek at prime. The interest and capital of the loan will be repaid using the dividends received from Brotek. The dividends must be applied in that manner until the loan is fully repaid. The agreement does not guarantee any minimum dividend. If the dividend stream is less that the interest on the loan the interest will be capitalised. The loan and any unpaid interest must be repaid by 2008. If it is not repaid Mustek will take ownership of the 30% shares and may pursue further claims against Puno.

Mustek carries all the underlying risks and rewards of owning the shares until the loan is repaid. Mustek therefore consolidates 100% of Brotek as from 1 July 2005 until the loan is repaid. Once the risk of ownership transfers to Puno, a disposal will be recorded. As the price is already determined, the directors considered the likelihood of a loss on disposal which should be set off (impaired) against the goodwill asset on the balance sheet. No such loss is expected.

The directors considered and appropriately accounted for the transaction in terms of IFRS 2 Share-based Payment, IFRIC 8 Scope of IFRS 2 and AC 503 Accounting for Black Economic Empowerment Transactions.

COMPANY

2006 R000

2005 R000

12. INVESTMENTS IN SUBSIDIARIESShares at cost 149 700 116 939

– opening balance 116 939 116 541

– subsidiaries acquired (see note 26) 32 761 1 658

– subsidiary disposed — (1 260)

Opening carrying value adjustments (58 835) (43 254)

Disposal of subsidiaries carrying value adjustment — 1 031

Current year reversal of (writing-off) loan 417 (13 664)

Current year impairment of investment — (2 948)

Loans owing by subsidiaries 94 785 90 344

Non-current investments in subsidiaries 186 067 148 448

Loans owing to subsidiaries (11 855) (11 143)

174 212 137 305

Refer Annexure A for detail of subsidiaries, including areas of management judgement and estimation uncertainty.

75


GROUP COMPANY

2006R000

2005R000

2006R000

2005R000

13. INVESTMENTS IN ASSOCIATESShares at cost 43 496 43 496 8 277 8 277

– opening balance 43 496 46 575 8 277 11 434

– associates acquired — 730 — 443

– transfer to joint venture — 1 484 — —

– transfer to subsidiaries — (1 693) — —

– associates disposed — (3 600) — (3 600)

Impairments (27 539) (27 539) (4 189) (4 189)

– opening balance (27 539) (16 746) (4 189) —

– current year impairment — (10 793) — (4 189)

Balance carried forward from previous page 15 957 15 957 4 088 4 088

Share of post-acquisition (losses) earnings (5 746) (10 406) — —

– opening balance (10 406) 6 061 — —

– share of current year earnings 4 660 (2 515) — —

– share of post-acquisition earnings disposed — (14 001) — —

– share of post-acquisition earnings acquired — 49 — —

Shares and post-acquisition earnings 10 211 5 551 4 088 4 088

Loans owing by associates 18 346 16 052 8 250 6 957

Investments in associates 28 557 21 603 12 338 11 045

Loans owing to associates — (329) — —

28 557 21 274 12 338 11 045

The aggregate assets, liabilities and results of operations of associates at year-end are summarised as follows:

Total assets 82 884 4 752 80 432 669

Total liabilities 34 304 12 247 22 680 9 264

Revenue 82 172 10 282 76 265 3 462

Profit (loss) before tax 18 220 (947) 19 120 (1 934)

Income tax expense (6 346) (4 706) (6 118) (4 417)

Net profit (loss) for the year 11 874 (5 653) 13 002 (6 351)

Detail of the Group’s investments in associates is disclosed in Annexure B, including areas of management judgement and estimation uncertainty.


76


14. INVESTMENT IN JOINT VENTUREGROUP COMPANY

2006R000

2005R000

2006R000

2005R000

Since 1 October 2004, due to a change in the shareholders’ agreement, the Group jointly controls Comztek (Pty) Limited. The results of the joint venture have been proportionately consolidated from that date.

Cost — — — —

Loans owing by joint venture 1 106 830 2 000 1 500

1 106 830 2 000 1 500

Percentage share holding 44,7% 44,7% 44,7% 44,7%

The Group and company’s 44,7% interest in the assets, liabilities and results of operations of the joint venture are summarised as follows:

GROUP AND COMPANY

2006R000

2005R000

Non-current assets 2 799 1 240

Current assets 100 140 87 720

Non-current liabilities 25 046 23 911

Current liabilities 64 283 58 358

Revenue 256 788 168 854


Income tax expense (2 311) (368)

Profit after tax 6 909 2 348

Minority interest (651) 638

Net profit for the year 6 258 2 986

Comztek (Pty) Limited declared a dividend of R4 million after year-end.

77


GROUP COMPANY

2006R000

2005R000

2006R000

2005R000

15. OTHER INVESTMENTS AND LOANSShares at cost 5 764 10 172 204 004 163 766

– opening balance 10 172 10 848 163 766 127 280

– exchange differences 74 (26) — —

– disposal of investments (3 832) — — —

– additional investments (650) (650) 40 238 36 486

Loans 3 653 3 203 11 614 10 500

Fair value adjustments 17 451 13 059 — —

– opening balance 13 059 (3 660) — —

– disposal of investments 3 079 — — —

– exchange differences taken to equity 1 639 — — —

– current year fair value (loss) gain (326) 16 719 — —

26 868 26 434 215 618 174 266

All investments are classified as held for trading and unrealised gains and losses are included in the net profit for the year. The directors’ valuation of unlisted investments equal their fair values. Refer Annexure C for details of other investments and loans, including management judgement and areas of estimation uncertainty.


78


GROUP COMPANY

2006R000

2005R000

2006R000

2005R000

16. DEFERRED TAX ASSETS AND LIABILITIESThe tax effects of temporary differences of the company and subsidiary companies resulted in deferred tax assets and liabilities. There is probable assurance that future taxable income will be sufficient to allow the tax benefit to be realised. The following are the major deferred tax liabilities and assets recognised at 29% (2005: 29%) except if otherwise indicated:

Tax loss 10 103 7 207 1 280 —

Provision for doubtful debts 1 007 1 456 887 1 218

Amortisation of intangible assets 32 (40) 40 42

Salary-related provisions 1 672 2 779 1 403 1 229

Accelerated wear and tear for tax purposes (4 189) (3 328) (2 408) (2 059)

Leased assets 272 — 272

Prepayments (922) (837) (851) (806)

Minor assets 75 83 75 41

Lease liability 8 646 7 352 6 846 6 462

Other provisions 1 430 — — —

Unrealised exchange gain (1 153) 800 (1 763) 3

Deferred revenue 5 870 2 891 5 544 2 661

Interest rate swap (1 081) (3 527) (1 081) (3 527)

Secondary tax on companies (12,5%) 13 680 7 868 13 680 7 868

Capital gains (2 167) — — —

Unrealised fair value capital gain on investment (14,5%) (3 481) (3 243) — —

29 522 19 733 23 652 13 404

Deferred tax assets 30 330 20 202 23 652 13 404

Deferred tax liabilities (808) (469) — —

29 522 19 733 23 652 13 404

79


GROUP COMPANY

2006R000

2005R000

2006R000

2005R000

16. DEFERRED TAX ASSET AND LIABILITY (continued)

Reconciliation between opening and closing balances:

Deferred tax asset at the beginning of the year 19 733 29 528 13 404 18 290

Originating (reversing) differences for taxable loss 2 896 (1 737) 1 280 —

Reversing differences on provision for doubtful debts (449) (1 252) (331) (422)

Reversing (originating) differences on amortisation of intangible assets 72 74 (2) 1

(Reversing) originating differences on salary-related provisions (1 107) 1 079 174 (146)

(Originating) reversing differences on accelerated wear and tear (861) (231) (349) 473

Reversing differences on leased assets (272) (388) (272) (385)

Originating differences on prepayments (85) (46) (45) (15)

(Reversing) originating differences on minor assets (8) 1 34 (41)

Originating differences on lease liability 1 294 368 384 396

Originating differences on other provisions 1 430 884 — —

Originating differences on unrealised exchange gain (1 953) (804) (1 766) —

(Originating) reversing differences on deferred revenue 2 979 (1 104) 2 883 (1 334)

Reversing (originating) differences on interest rate swap derivative 2 446 (916) 2 446 (916)

Originating (reversing) differences on secondary tax on companies 5 812 (1 857) 5 812 (1 857)

Reversing differences on capital gains tax (2 167) (626) — (159)

Reversing (originating) IAS 39 differences on inventory — 3 — (481)

Originating difference on fair value adjustment (238) (3 243) — —

29 522 19 733 23 652 13 404

The 2005 deferred taxation balances have been restated. See note 32 for more information.

17. INVENTORIESFinished goods, net of provision for obsolescence 667 702 556 118 260 627 262 544

Inventories in transit 95 697 55 159 39 457 30 713

763 399 611 277 300 084 293 257

Service stock and trading stock obsolescence provisions are highly judgemental because of the very competitive nature of the business and the extremely short life cycle of the product. Service stock is impaired depending on its age. The net realisable values of inventories are used to manage their cost. The net realisable value of inventory represents the estimated selling price in the current market at balance sheet date.

The Group provides for the amount which the cost of inventory is higher than the net realisable value multiplied by the units of stock on hand at balance sheet date. Included above are the carrying amounts of inventory stated at net realisable value for the Group and company of R36 020 383 (2005: R26 881 989) and R27 703 167 (2005: R20 395 941) respectively.


80


GROUP COMPANY

2006R000

2005R000

2006R000

2005R000

18. TRADE AND OTHER RECEIVABLESTrade receivables 368 233 372 499 50 037 5 653

Other receivables 29 734 49 461 11 127 23 876

Interest rate swap derivative asset (also see note 23) 3 728 12 162 3 728 12 162

Total current trade and other receivables 401 695 434 122 64 892 41 691

Non-current trade and other receivables 22 116 13 233 10 294 13 233

Trade receivables securitisation

ObjectivesThe Group is party to receivables securitisation transactions, which have the following funding and earnings enhancement objectives:

>> To create a flexible environment whereby the Group can raise external funding using its trade receivables as security.

>> To raise funding at an efficient cost.

>> To facilitate the recurring funding of the Group’s growing operations.

>> To enhance profitability and earnings per share by reducing the Group’s funding rate.

Structure components

>> Special purpose entities (“SPEs”), were incorporated and the Group entered into the sale of receivables and other agreements with the SPEs. The Group reserves the right to administer the receivables books itself and earns a market-related fee for this function.

>> The SPEs raise funds against its accumulated receivables books. In order to provide the external funders of the SPEs with well secured credit exposure, the SPEs are capitalised with a sufficient level of subordinated debt, obtained from finance companies (“FinCOs”).

>> Credit ratings were obtained on the SPEs’ abilities to meet their obligations and the Group’s ability to manage the receivables books, taking into consideration that the receivables books are insured by third party insurers to a large extent.

>> The Group invests in preference shares issued by investment companies. As security for the preference share investments, the Group has put options to put the preference shares to the FinCOs if certain option events are met. As security for the put options, the FinCOs cede all its rights to the Group in respect of the subordinated loans to the SPEs.

>> The Group has options to acquire all the issued shares of the SPEs after the initial five-year transaction period (see Annexure C).

Accounting treatment

>> The SPEs are consolidated in terms of SIC 12 Consolidation – special purpose entities.

>> The Group trade receivables includes R306,2 million (2005: R302,8 million) of SPE trade receivables and R244,4 million (2005: R229,2 million) of external borrowings by the SPEs are included in the total borrowings of the Group (see note 21).

>> The financial assets (preference share investments) and financial liabilities (subordinated loans of the FinCOs to the SPEs) are offset on the balance sheet. The net amount is reported as the Group has legally enforceable rights to set-off and intends to settle on a net basis (see Annexure C).

>> Since the balance sheet items are set-off, it is appropriate to set-off the corresponding income and expense items, being the dividends received from the preference share investments and the interest paid on the subordinated loans (see note 4 and note 5).

81


18. TRADE AND OTHER RECEIVABLES (continued)

Other information

The directors consider that the carrying amount of trade and other receivables approximates to their fair value.

The Group’s credit risk is primarily attributable to its trade and other receivables. The amounts presented in the balance sheet are net of allowances for doubtful receivables, estimated by the Group’s management based on prior experience and the current economic environment. Provision for doubtful debts of the company was based on specific identified doubtful debtors. The provision for Rectron Holdings (Proprietary) Limited debts was based on all debtor amounts older than 60 days. The directors believe that the provision appears to be appropriate and not excessive. The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties and customers. The Group performs ongoing credit valuations of the financial condition of customers, and where appropriate, credit guarantee insurance is purchased for 80% of the value of trade receivables.

19. BANK BALANCES AND CASHBank balances and cash comprise cash, funds on call and short-term deposits. The carrying amount of these assets approximates to their fair value. The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit rating agencies. In terms of IAS 1 Presentation of Financial Statements, included in bank balances and cash is R280,3 million (2005: R713,2 thousand) (Group) and R220,1 million (2005: R499,2 thousand) (company) of investments in dividend yielding unit trusts that can be converted into cash within 24 hours and that is not exposed to equity fluctuations.

2006R000

2005R000

20. SHARE CAPITAL AND SHARE PREMIUMGROUP AND COMPANY

Authorised:

250 000 000 ordinary shares of R0,008 each 2 000 2 000

1 non-cumulative preference share of R265 489,66 265 265

2 265 2 265

Issued:

107 514 661 (2005: 104 643 639) ordinary shares of R0,008 each 860 837

1 non-cumulative preference share of R265 489,66 265 265

1 125 1 102

Number of shares000

Ordinary shares

Balance at 30 June 2005 104 644 101 567

Share-based payments — —

Shares issued in terms of option scheme 2 871 3 077

Balance at 30 June 2006 107 515 104 644

Preference share

Share issued in previous years * *

*1 preference share


82


20. SHARE CAPITAL AND SHARE PREMIUM (continued)

These shares exclude the 11 419 215 (2005: 6 490 237) share options granted to participants in terms of the Mustek executive share scheme.

Taiwan Depository Receipts (“TDRs”) are listed on the Taiwan Securities Exchange. At 30 June 2006, 1 484 000 TDRs were in issue (2005: 1 591 000).

On 31 August 2004 the shareholders approved an empowerment transaction with Safika Holdings (Pty) Limited. In terms of the agreement, Safika will acquire up to a maximum shareholding of 25% plus one share of the voting rights in Mustek on a poll; and acquire up to a cumulative maximum of 25% plus one share of the effective number of issued shares in Mustek over the relevant period.

The following special resolutions were approved at the general meeting:

1. The par value of the preference share was increased to R265 489,66.

2. The insertion of Articles 32A, 32B and 32C into the articles of association of the company to afford the preference shareholder 25% plus one vote (including any ordinary share that the shareholder may hold) of the voting rights of the company for a period of five years

3. The replacement of the existing article 84 in the articles of association of the company. The holder shall be entitled to a collective vote of 25% plus one vote of the voting rights of the company for a period of five years from 1 July 2003 unless the preference share has been cancelled. To the extent that the preference share voting rights are not recognised for the purposes of the JSE Limited (JSE), the holder shall be entitled to attend the general meeting of the company to exercise the votes attaching to the preference share at any meeting. If after taking into account the preference share voting rights on any resolution, the requisite majority of the passing of the resolution for JSE purposes is not achieved, the resolutions shall be deemed to have failed. The preference share voting rights shall reduce proportionately to the extent that the holder acquires ordinary shares in the company in terms of the call option. The holder shall, on an annual basis, during the period that it holds the preference share and subject to the approval of the board of the company, which approval shall not be unreasonably withheld, be entitled to identify an executive director to the board of the company, a non-executive director who will be the non-executive deputy chairman of the board, a member to the audit committee of the company and an independent non-executive director who shall be appointed to its board. The preference share shall be entitled to a dividend on an annual basis equal to 62,3% of the overnight call rate offered by Nedbank to the company on deposits of R5 000 000, less the amount of dividends declared by the company during the financial year concerned in respect of the ordinary shareholding of the holder in the company.

The preference share was not listed on the JSE.

The one preference share with a par value of R265 490 was issued to Safika on 6 October 2004 at a premium of R4 734 510. In terms of IAS 32 Financial Instruments: Presentation and disclosure, the proceeds were divided into liability and equity portions of R734 956 and R3 999 554 respectively. Preference share dividends accrued are recorded against the liability portion. The liability portion is revalued at each reporting period with the adjustment booked to income statement as finance cost or investment income. Due to these amounts being immaterial, they are not separately disclosed in notes 4 and 5. An implied average interest rate of 7,79% (2005: 6,26%) was used to value the liability portion at year-end. The liability portion is included in short-term loans in note 21 and the fair value adjustment in other interest received in note 4 due to favourable interest rate movements for the period.

On the attainment of certain EBITDA hurdles by Mustek from 1 July 2003, Safika will be entitled to subscribe for ordinary shares in Mustek up to a cumulative maximum of 5% of the effective number of issued shares at the end of the financial year for which the relevant portion of the call option relates. Safika will subscribe for the ordinary shares at the nominal value of such ordinary shares. Safika will only be entitled to exercise each portion of the call option at the end of each financial year in which the EBITDA hurdles are achieved by Mustek.

The number of shares that Mustek will issue to Safika at each call option date will be limited to an effective cumulative maximum of 5% in year one, 10% in year two, 15% in year three, 20% in year four, and 25% in year five, of the effective number of issued shares after taking into account the number of shares to be issued to Safika at the end of the particular financial year to which that portion of the call option relates.

In the event that Mustek does not achieve the EBITDA hurdles in any financial year, Safika will be entitled to a catch up mechanism that will allow Safika to subscribe for ordinary shares based on the achievement of minimum EBITDA hurdles during the remaining transaction period. Safika will not be entitled to carry forward any over-achievement in respect of the EBITDA hurdles achieved by Mustek. In the event of any corporate actions during the relevant period, the number of shares that Safika will be entitled to hold will be adjusted accordingly.

The EBITDA hurdles for the years ended 30 June 2004, 30 June 2005 and 30 June 2006 were not achieved. In terms of the agreement either Mustek or Safika can cancel the agreement if the hurdles have not been achieved for three consecutive years.

83


GROUP COMPANY

2006R000

2005R000

2006R000

2005R000

21. BORROWINGSInterest bearing

Long-term loans (see note 18) 244 413 229 240 — 505

Mortgage and term loans 12 848 38 765 — —

Capitalised finance leases (see note 10) 1 232 397 — —

Operating lease liabilities 28 877 25 145 23 609 22 282

Instalment sale agreements 51 290 — —

Short-term loans 1 522 13 110 628 761

Bank overdrafts 2 472 20 279 — —

Total interest-bearing borrowings 291 415 327 226 24 237 23 548

Interest free

Long-term loans — — — —

Short-term loans 332 314 — —

Total interest-free borrowings 332 314 — —

Total borrowings 291 747 327 540 24 237 23 548

Bank balances and cash (476 921) (398 402) (259 515) (217 757)

Total funds available (185 174) (70 862) (235 278) (194 209)

The borrowings are repayable as follows:

On demand or within one year 175 942 82 210 938 761

In the second year 27 572 163 906 2 127 815

In the third to fifth years inclusive 23 826 48 014 19 398 12 656

After five years 64 407 33 410 1 774 9 316

Total borrowings 291 747 327 540 24 237 23 548

Bank overdrafts (2 472) (20 279) — —

Amounts due for settlement within 12 months (173 470) (61 931) (938) (761)

Long-term borrowings 115 805 245 330 23 299 22 787

Consisting of:

Interest-bearing borrowings 115 473 245 016 23 299 22 787

Interest-free borrowings 332 314 — —

115 805 245 330 23 299 22 787


84


21. BORROWINGS (continued)

Additional information

Included in borrowings are the following:

R160,0 million (2005: R160,0 million), due by Mecer Capital (Pty) Limited, is bearing interest at a fixed interest rate of 11,88 % per annum, secured against the trade receivables (see note 18) and repayable on 30 November 2006. The rate has been swapped for a floating rate of three-month ZAR-JIBAR-SAFEX minus 0,07% (see note 23). This loan is classified as short term in the current year but will, most likely, be renegotiated.

R50,0 million (2005: R46,0 million) due by Firefly 91 Investments (Pty) Limited, is bearing interest at prime minus 2,1%, secured against the trade receivables (see note 18) and repayable on 31 May 2011.

R34,4 million (2005: R23,2 million) due by KGM 202 Investments (Pty) Limited, bearing interest at a fixed interest rate of 8,89% per annum, secured against the trade receivables (see note 18) and repayable on 29 June 2008.

Interest-free loans have no fixed terms of repayment. These are therefore regarded as repayable on demand.

The short-term loan bears interest at between 62% and 72% of prime and is repayable in the next 12 months.

Bank overdrafts denominated in South African Rand bear interest at the prime overdraft rate.

The term loan (2005: mortgage loan) is denominated in Australian Dollar and bears interest at 17,8% (2005: prime), is secured by land and buildings with a net book value of R15,0 million (2005: R70,4 million) and is repayable in 2027 (2005: equal instalments over a period of 10 years).

Operating lease liabilities occur in the earlier years of long-term operating lease contracts with fixed escalation clauses as an equal amount is expensed every year as the cash flow escalates. These liabilities are not secured and do not have an interest component attached to them.

GROUP

Minimum lease payments

Present value of minimum lease

payments

Obligations under finance leases2006R000

2005R000

2006R000

2005R000

Amounts payable under finance leases:

Within one year 438 143 305 102

In the second to fifth years inclusive 1 125 346 927 295

1 563 489 1 232 397

Less future finance charges (331) (92) N/A N/A

Present value of lease obligations 1 232 397 1 232 397

Less amounts due for settlement within 12 months (305) (102)

Amount due for settlement after 12 months 927 295

It is the Group’s policy to lease certain of its fixtures and equipment under finance leases. The average lease term is four years. For the year ended 30 June 2006, the effective borrowing rate was between 10,2% and 12,4% (2005: 9,0% – 10,0%). Interest rates are fixed at the contract date, and thus expose the Group to fair value interest rate risk. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments. The Group’s obligations under finance leases and instalment sale agreements are secured by the lessors’ charges over leased assets with a net book value of R1,8 million (2005: R1,3 million) (see note 10).

All obligations are denominated in Rand, except as noted above.

The fair value of the Group’s obligations approximates their carrying amount.

The Group’s obligations are secured by the lessors’ title to the leased assets.

85


21. BORROWINGS (continued)

Borrowing powers, borrowing capacity and banking facilities

In terms of the memorandum of association, the company’s borrowing powers are unlimited. The Group has banking facilities amounting to R813,3 million (2005: R542,3 million), which are secured by cross guarantees in the Group as follows:

GROUP

2006R000

2005R000

General overdraft and similar facilities 314 496 142 250

Trade finance facilities* 302 016 265 252

Foreign exchange contracts pre-settlement exposure 196 815 134 836

813 327 542 338

*This includes facilities mentioned in note 22

GROUP COMPANY

2006R000

2005R000

2006R000

2005R000

22. TRADE AND OTHER PAYABLES AND PROVISONSTrade finance payables 308 497 313 382 247 825 264 560

Trade payables 588 925 349 576 353 112 217 293

Other payables 79 134 105 340 32 751 18 567

Total trade and other payables 976 556 768 298 633 688 500 420

The Group entered into trading agreements with international trading companies whereby the trading companies purchase products from foreign suppliers for the purpose of re-selling such products to the Group. The trading companies facilitate the transactions, provide certain services and supply between 90 to 120 days trade payment terms to the Group. The maximum facility available to the Group is US$43,5 million (2005: US$40 million) and trade finance commission, treated as a finance cost in the income statement (see note 5), is calculated at rates between LIBOR and LIBOR plus 1,35%.

Trade and other payables comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 128 days (2005: 102 days).

The directors consider that the carrying amount of trade and other payables approximates to their fair value.


86


22. TRADE AND OTHER PAYABLES AND PROVISIONS (continued)

The following movements occurred in provisions:

Leave pay provision

Bonus provision Other Total

GROUP

Opening carrying amount 3 533 3 442 — 6 975

Additional provision 2 165 10 523 6 12 694

Amounts used (1 045) (6 771) (6) (7 822)

Unused amounts reversed — (219) — (219)

Closing carrying amount 4 653 6 975 — 11 628

COMPANY

Opening carrying amount 2 159 2 326 — 4 485

Additional provision 348 4 676 — 5 024

Amounts used (119) (4 552) — (4 671)

Closing carrying amount 2 388 2 450 — 4 838

Employee entitlements to annual leave are recognised as services are rendered. A provision, based on total employment cost, is raised for the estimated liabilities as a result of services rendered by employees up to balance sheet date.

The bonus provision relates to performance bonus targets achieved and the annual 13th cheque payable to employees of the Group and the company.

87


23. DERIVATIVE FINANCIAL INSTRUMENTSCurrency derivatives

The company and Group enters into forward exchange contracts to buy and sell specific amounts of foreign currencies in the future at predetermined exchange rates. The contracts are entered into in order to manage the Group’s exposure to fluctuations in foreign exchange rates on specific transactions. The contracts are matched with anticipated future cash flows in foreign currencies primarily from purchases.

The company and Group do not use derivative financial instruments for speculative purposes.

At balance sheet date, the company and Group had contracted to buy/sell the following amounts under forward exchange contracts:

2006Rate

R

2005Rate

R

2006Foreign

000

2005Foreign

000

GROUP

Buy:

US Dollars

Less than three months 6,75 6,33 76 271 28 177

Three to six months 7,22 — 392 —

Euro

Less than three months 9,22 — 261 —

SELL:

US Dollars


COMPANY

Buy:

US Dollars


Sell:

US Dollars


At 30 June 2006 the equivalent market value of the Group and company’s net currency derivatives is estimated to be approximately R298,0 million (2005: R69,2 million) and R56,7 million (2005: R69,2 million) respectively. These amounts are based on market values of equivalent instruments at the balance sheet date. As a result of the difference between the net forward obligation and the market value thereof at year-end, the Group and company recognised net foreign currency assets of R4,9 million (2005: R6,3 million) and R1,1 million (2005: R6,3 million) respectively.

GROUP COMPANY

2006R000

2005R000

2006R000

2005R000

Foreign currency assets 10 599 6 304 1 092 6 353

Foreign currency liabilities 5 655 — — —

Net foreign currency assets 4 944 6 304 1 092 6 353

Interest rate swap

On 9 May 2002 the company entered into an interest rate swap with a nominal value of R160 million at a floating rate of three-month ZAR-JIBAR-SAFEX minus 0,07%. The effective date is 1 March 2003 and the termination date is 30 November 2006. The fair value of the swap is estimated at R3,7 million (2005: R12,2 million) for the Group and company. This amount is based on the market value of a similar instrument at the balance sheet date and is included in trade and other receivables (see note 18).


88


GROUP COMPANY

2006R000

2005R000

2006R000

2005R000

24. NET CASH FROM OPERATIONSProfit for the year 74 593 95 943 70 820 44 286

Adjustments for:

Income tax expense (benefit) 16 163 42 737 (9 195) 11 540

Interest income (19 039) (26 944) (46 976) (48 418)

Finance costs 64 066 56 493 11 351 10 430

Dividend income (9 937) (5 590) (49 082) (4 539)

Gain on disposal of discontinued operation (19 131) (3 933) — —

Depreciation of property, plant and equipment 19 681 15 526 7 247 9 048

Net (profit) loss on disposal of plant and equipment (3 742) 141 (35) (8)

Increase in provisions 4 653 1 184 353 60

Unrealised foreign exchange losses 69 517 21 471 41 276 7 626

Fair value adjustments of derivative instruments 3 489 (9 763) 7 342 (9 812)

Share-based payment 2 608 1 633 2 608 1 633

(Profit) loss from associates (4 660) 567 — —

Amortisation of intangible assets 296 564 — —

Impairment of goodwill 298 5 852 — —

Profit on disposal of subsidiaries and other businesses — (1 360) — —

Fair valuation of investment 326 (22 366) — —

Subsidiary loan written (back) off — — (417) 13 664

Impairment of investment in subsidiary — — — 2 948

Profit on disposal of associate — (2 239) — (10 400)

Impairment of associates — 10 793 — 4 189

Fair value adjustments of investments and loans — 5 637 — —

Operating cash flows before movements in working capital 199 181 186 346 35 292 32 247

Working capital movements 22 882 (67 164) 57 417 13 165

Increase in inventories (152 122) (88 649) (6 827) (50 357)

Increase (decrease) in trade and other receivables 10 867 (77 895) (31 635) (4 997)

Increase (decrease) in deferred income 11 585 (4 173) 9 888 (4 173)

(Decrease) increase in trade finance payables (74 402) 20 771 (58 011) 35 129

Increase in trade and other payables 226 954 82 782 144 002 37 563

Net cash from operations 222 063 119 182 92 709 45 412

89


GROUP

2006R000

2005R000

25. PROCEEDS ON DISCONTINUANCE OR DISPOSAL OF SUBSIDIARIESDuring the current year, the Group disposed of Rectron Plc and Axper Technologies (Pty) Limited (2005: Rectron International BV and Third Party Management (Pty) Limited).

The aggregate value of assets and liabilities disposed of were as follows:

Plant and equipment — —

Trade and other receivables 1 371 —

Bank balances and cash 12 22

Trade and other payables (20 514) (3 954)

Net asset value disposed (19 131) (3 932)

Profit on disposal 19 131 3 932

Total consideration — —

Cash and cash equivalents disposed (12) (22)

Net cash outflow (12) (22)

26. ACQUISITION OF SUBSIDIARIES AND JOINT VENTUREDuring the year the Group acquired Sheerprops 69 (Pty) Limited, Formprops 110 (Pty) Limited, Comztek Africa Namibia (Pty) Limited and additional shares in Brotek (Pty) Limited, Mecer East Africa Limited and Mecer (EPZ) Limited (2005: Additional shares in CIS Thuthukani Technology (Pty) Limited, Mecer Inter-Ed (Pty) Limited and Soft 99 International (Pty) Limited and started accounting for the investment in Comztek (Pty) Limited on the proportionate consolidation basis (see note 14)).

The aggregated fair value of the assets acquired and liabilities assumed were as follows:

Property, plant and equipment 13 392 905

Software — 431

Investment in and loan to associate — 531

Inventories — 12 678

Trade and other receivables 67 31 362

Bank balances and cash 2 9 260

Deferred tax (liability) asset (2 427) 534

Long-term borrowings — (27 919)

Trade and other payables (397) (25 246)

Short-term borrowings (3 268) —

Bank overdraft (1) —

Sub-total 7 368 2 536

Goodwill 8 731 5 946

16 099 8 482

Acquired previously as investments in associates — (6 049)

Adjustments to minority interests 24 329 —

Trade and other payables (12 354) —

Total consideration satisfied by cash 28 074 2 433

Satisfied by cash (28 074) (2 433)

Bank balances and cash acquired 2 9 260

Net cash (out flow) in flow on acquisition (28 072) 6 827

The goodwill arising on the acquisition of Brotek (Pty) Limited and Mecer East Africa Limited is attributable to the anticipated future economic benefits from the subsidiaries.


90


GROUP COMPANY

2006R000

2005R000

2006R000

2005R000

27. OPERATING LEASE ARRANGEMENTSThe Group has outstanding commitments under non-cancellable operating leases, which fall due as follows:

Cash due:

During the ensuing year 33 779 20 173 16 521 16 399

In the second year 35 512 21 187 18 339 18 254

In the third to fifth year inclusive 114 497 72 939 68 031 62 864

Thereafter 55 301 29 820 4 476 29 556

239 089 144 119 107 367 127 073

Operating lease liability 28 877 25 145 23 609 22 282

To be expensed:

During the ensuing year 32 994 21 132 16 211 17 726

In the second year 32 402 20 662 16 211 17 944

In the third to fifth year inclusive 91 289 58 090 48 634 50 208

Thereafter 53 527 19 090 2 702 18 913

239 089 144 119 107 367 127 073

The majority of operating lease payments represent rentals payable by the Group for the use of the properties from which it operates.

28. GUARANTEES AND CONTINGENT LIABILITIES

Unlimited guarantees

>> Banking facilities of subsidiary companies.

Limited guarantees

>> Standby letters of credit for Microsoft and Intel International BV for US$500 000 each.

Legal dispute

>> The Group has a legal matter pending with Siltek Holdings Limited which if unsuccessful, may result in the Group being liable for approximately R0,3 million.

29. RETIREMENT BENEFIT PLANS

The Mustek Group Retirement Fund, a defined contribution fund, was established with effect from 1 January 1998. Smaller funds previously in existence have been amalgamated into this fund. The fund has been registered by the Registrar of Pension funds and is governed by the Pension Funds Act No 24 of 1956 as amended. The majority of the Group’s employees belong to this fund.

30. INTERESTS OF DIRECTORS IN CONTRACTS

The directors have certified that they were not materially interested in any transaction of any significance with the company or any of its subsidiaries. Accordingly, a conflict of interest with regards to directors’ interest in contracts does not exist.

91


31. RELATED PARTY TRANSACTIONSDuring the 2006 financial year the company had the following related parties:

SUBSIDIARIES

Related partyType of

transaction

Amount of transaction

R000

Amount receivable (payable)

R000

Terms and

conditions

Nature of conside-ration in

settlement

Brotek (Pty) Limited@ Purchases 8 816 (779) Contracted terms Cash

Sales 790 9 Contracted terms Cash

Makeshift 1000 (Pty) Limited* Loan 873 46 114 Interest free Cash

Quickstep 94 (Pty) Limited@ Loan 49 23 396 Interest at prime Cash

Mecer East Africa Limited@ Sales 10 531 4 578 Cost plus 2% Cash

Loan 4 270 4 348 Interest free Cash

Mecer Digital Do Brasil Limited@ Sales 65 871 38 303 Cost plus 2% Cash

Lithatek Investments (Pty) Limited@ Loan 751 2 465 Interest free Cash

MFS Technologies (Pty) Limited@ Sales 24 268 232 Gross profit of 2% Cash

Datazone Limited@ Loan 712 (712) Interest free Cash

Rectron Holdings Limited@ Sales 6 512 174 Gross profit of 5% Cash

Purchases 73 991 (16 207) Gross profit of 5% Cash

Mecer Inter-Ed (Pty) Limited@ Purchases 1 493 — Contracted terms Cash

Note: Refer to Annexure A for a complete list of subsidiaries.

@ Amounts receivable or payable are unsecured and no guarantees have been given or received. No amount has been provided as doubtful and no expense has been recognised in respect of bad or doubtful debts due from the related party.

* R24,3 million of the amount outstanding has been impaired.

ASSOCIATES


transaction


R000

Amount receivable

R000

Terms and

conditions


settlement

Zinox Technologies Limited@ Loan 710 8 250 Interest at prime Cash

Sales 1 952 42 Contracted terms Cash

Preworx (Pty) Limited@ Sales 148 6 Contracted terms Cash

Loan 863 9 958 Contracted terms Cash

Note: Refer to Annexure B for a complete list of associates.



92


31. RELATED PARTY TRANSACTIONS (continued)

JOINT VENTURE


transaction


R000

Amount receivable

(payable) R000

Terms and

conditions


settlement

Comztek (Pty) Limited@ Purchases 5 943 (407) Gross profit of 5% Cash

Sales 16 465 17Z3 Gross profit of 5% Cash

Loan 500 2 000 Interest at 72% of prime Cash


OTHER RELATED PARTIES

Related partyNature of

relationshipType of

transaction


R000

Amounts payable

R000Terms and conditions


settlement

Mecer Capital (Pty) Limited@

Common directorship

Sale of debtors 1 410 330 (120 563) Contracted terms Cash

Bees Marketing (Pty) Limited@

Close member of family Marketing 15 388 (1 337) Contracted terms Cash

Mustek Electronics Properties (Pty) Limited@

Common directorship

Rental of premises 13 409 — Contracted terms Cash


During the 2005 financial year the company had the following related parties:

SUBSIDIARIES


transaction


R000

Amount receivable (payable)

R000

Terms and

conditions


settlement

Brotek (Pty) Limited@ Purchases 4 126 (791) Contracted terms Cash

Makeshift 1000 (Pty) Limited* Loan 945 45 241 Interest free Cash

Tradeselect 38 (Pty) Limited@ Loan 8 14 230 Interest free Cash

Quickstep 94 (Pty) Limited@ Repayment of loan 5 030 23 347 Interest at prime Cash

CIS Thuthukani Technology (Pty) Limited (Comp Import)@ Sales 13 075 1 065 Gross profit of 5% Cash

Mustek Limited Company Limited Loan 1 273 1 741# Interest free Cash

Mecer East Africa Limited@ Sales 6 297 3 099 Cost plus 2% Cash

Mecer Digital Do Brasil Limited@ Sales 278 200 Cost plus 2% Cash

MFS Technologies (Pty) Limited@ Sales 14 049 980 Gross profit of 2% Cash

Rectron Holdings Limited@ Sales 5 382 510 Gross profit of 5% Cash

Purchases 16 011 (1 131) Gross profit of 5% Cash

Mecer Inter-Ed (Pty) Limited Purchases 8 646 — Contracted terms Cash

Note: Refer to Annexure A for a complete list of subsidiaries.


*R24,3 million of the amount outstanding has been impaired.

#R689 416 has been provided as doubtful and expensed in the 2005 financial year.

93



ASSOCIATES


transaction


R000

Amountreceivable

(payable) R000

Terms and conditions


settlement

Zinox Technologies Limited@ Loan 535 6 957 Contracted terms Cash

Sales 105 — Contracted terms Cash

Comztek (Pty) Limited❉@ PurchasesSales

Loan

1 778134

1 000

(4)314

1 500

Contracted termsContracted termsInterest at 72%

of prime

Cash

CashCash

Gijima Support Services (Pty) Limited•@ Sales 2 336 52 Contracted terms Cash

Preworx (Pty) Limited@ Sales 130 — Contracted terms Cash

Loan 945 9 095 Contracted terms Cash

Note: Refer to Annexure B for a complete list of associates.

❉For the period until 30 September 2004 when it became a joint venture.

•For the period until 31 October 2004 when it was disposed.


JOINT VENTURE


transaction


R000

Amountreceivable

(payable) R000

Terms and conditions


settlement

Comztek (Pty) Limited*@ Purchases 3 574 (660) Gross profit of 5% Cash

Sales 1 172 122 Gross profit of 5% Cash

Repayment of loan 2 500 1 500

Interest at 72% of prime Cash

*From 1 October 2004 when it became a joint venture.



94



OTHER RELATED PARTIES

Related partyNature of

relationshipType of

transaction


R000

Amountreceivable (payable)

R000Terms and conditions


settlement

Formprops 110 (Pty) Limited@ Directors’ influence

Rental of premises 1 771 4 466 Contracted terms Cash

Sheerprops 69 (Pty) Limited@ Directors’ influence

Rental of premises 1 986 (1 371) Contracted terms Cash

Mecer Capital (Pty) Limited@

Common directorship

Sale of debtors 1 342 963 (106 952) Contracted terms Cash

Bees Marketing (Pty) Limited@

Close member of family Marketing 18 270 (4 672) Contracted terms Cash

Mustek Electronics Properties (Pty) Limited@

Common directorship

Rental of premises 14 884 — Contracted terms Cash


Key management personnel compensation

The remuneration of directors and other members of key management during the year were as follows:

GROUP COMPANY

2006 R000

2005 R000

2006 R000

2005 R000

Short-term benefits 9 222 7 516 3 574 3 385

Share-based payments 254 — 254 —

9 476 7 516 3 828 3 385

95


32. RESTATEMENTSDiscontinued operations

The prior year income statement amounts have been adjusted in terms of IFRS 5 Non-current assets held for sale and discontinued operations for operations discontinued in the current year.

Transition to international financial reporting standards

The Group and company adopted International Financial Reporting Standards (“IFRS”) with effect from the 2005 financial year. The Group and company’s date of transition to IFRS is 1 July 2004. The opening balance sheets on 1 July 2004 and comparative information for 2005 have been restated to comply with all IFRS effective as at 30 June 2006, except for the exemptions applied in terms of IFRS 1 First-time adoption of IFRS. The adoption of these new and revised Standards and Interpretations has resulted in changes to the Group’s accounting policies in the following areas that have affected the amounts reported for the current or prior years:

>> Foreign currency translation reserve

The Group has elected to apply the exemption afforded in IFRS 1 First-time adoption of International Financial Reporting Standards (“IFRS”) whereby the foreign currency translation reserve is reset to zero at the date of transition.

>> Share-based payments

IFRS 2 Share-based payments has been applied retrospectively to the employee share option scheme. The fair value of equity-settled share-based payment transactions is charged to the income statement and the reciprocal credit is shown in ordinary share premium in the balance sheet.

>> Property, plant and equipment

The residual values and useful lives of major items of property, plant and equipment have been re-assessed and where applicable, depreciation has been adjusted as required by IAS 16 Property, Plant and Equipment. This statement has been applied retrospectively.

>> Deferred tax and minority interests

Deferred tax and minority interests have been adjusted for the changes made to the carrying value of assets and liabilities through the adoption of IFRS.

>> Discontinued operations

IFRS 5 Non-current assets held for sale and discontinued operations has been applied retrospectively.

>> Reclassifications

IAS 1 Presentation of Financial Statements has been applied retrospectively and resulted in the reclassification of certain account balances.

The impact of the discontinued operations of the current year and the transition to IFRS on the Group and company’s reported earnings for the year ended 30 June 2005 and the balance sheets on 30 June 2005 is presented below. There was no impact on the Group or company cash flow statements.


96


32. RESTATEMENTS (continued)

The 2005 consolidated income statement has been restated as follows:

Consolidated income statement Continuing operations

PreviousGAAP R000

IAS 1 R000

IAS 16 R000

IFRS 2 R000

IFRS 5 R000

IFRS Restated

R000

Revenue 2 942 244 — — — (99 957) 2 842 287

Cost of sales (2 469 795) — — — 98 534 (2 371 261)

Gross profit 472 449 — — — (1 423) 471 026

Other income 15 969 — — — (272) 15 697

Distribution, administrative and other operating expenses (313 557) (15 747) (115) (1 632) 11 410 (319 641)

EBITDA* 174 861* * (115)* (1 632)* 9 715* *

Depreciation (16 548) 15 183 1 022 — 343 —

Amortisation of intangible assets (564) 564 — — — —

Share of loss of associates (567) — — — — (567)

Profit from operations 157 182 — 907 (1 632) 10 058 166 515

Investment revenue 32 534 — — — (29) 32 505

Finance costs (56 493) — — — 150 (56 343)

Other gains and (losses) 6 182 — — — (3 933) 2 249

Profit before tax 139 405 — 907 (1 632) 6 246 144 926

Income tax expense (42 510) — (227) — (70) (42 807)

Profit for the year from continuing operations 96 895 — 680 (1 632) 6 176 102 119


Loss for the year from discontinued operations — — — — (6 176) (6 176)

Profit for the year 96 895 — 680 (1 632) — 95 943

Attributable to:

Equity holders of the parent 83 274 — 557 (1 632) — 82 199

Minority interest 13 621 — 123 — — 13 744

96 895 — 680 (1 632) — 95 943

*In line with IAS 1, EBITDA would not be appropriate.

97



Headline earnings per ordinary share, basic earnings per ordinary share, diluted headline earnings per ordinary share and diluted basic earnings per ordinary share have been restated as follows:

PreviousGAAP R000

IAS 16 R000

IFRS 2R000

RestatedIFRS

R000

From continuing and discontinued operations

Headline earnings per ordinary share (cents) 90,36 0,67 (1,57) 89,46

Basic earnings per ordinary share (cents) 80,28 0,54 (1,57) 79,25

Diluted headline earnings per ordinary share (cents) 87,03 0,65 (1,51) 86,17

Diluted basic earnings per ordinary share (cents) 77,32 0,52 (1,51) 76,33

From continuing operations

Headline earnings per ordinary share (cents) — — — 95,88

Basic earnings per ordinary share (cents) — — — 83,17

Diluted headline earnings per ordinary share (cents) — — — 92,35

Diluted basic earnings per ordinary share (cents) — — — 80,10

The 2005 consolidated balance sheet has been restated as follows:

CONSOLIDATED BALANCE SHEET

PreviousGAAP R000

IFRS 1 R000

IFRS 2 R000

IAS 16 R000

IAS 1 R000

RestatedIFRS R000

ASSETS

Non-current assets

Property, plant and equipment 140 610 — — 4 336 — 144 946

Intangible assets 3 598 — — — — 3 598

Investments in associates 21 274 — — — 329 21 603

Investment in joint venture 830 — — — — 830

Other investments and loans 26 434 — — — — 26 434

Non-current trade and other receivables 13 233 — — — — 13 233

Deferred tax asset 21 453 — — (1 251) — 20 202

227 432 — — 3 085 329 230 846

Current assets

Inventories 611 277 — — — — 611 277

Trade and other receivables 434 122 — — — — 434 122

Foreign currency assets 6 304 — — — — 6 304

Tax assets 15 354 — — — — 15 354

Bank balances and cash 398 402 — — — — 398 402

1 465 459 — — — — 1 465 459

Total assets 1 692 891 — — 3 085 329 1 696 305


98



CONSOLIDATED BALANCE SHEET (continued)

PreviousGAAP R000

IFRS 1 R000

IFRS 2 R000

IAS 16 R000

IAS 1 R000

RestatedIFRS R000



Share capital 837 — — — — 837

Capital reserves 81 270 — 4 297 — — 85 567

Preference share capital 265 — — — — 265

Preference share premium 4 000 — — — — 4 000

Accumulated profits 415 998 (7 783) (4 297) 2 549 — 406 467

Revaluation reserve 681 — — — — 681

Foreign currency translation reserve (5 317) 7 783 — — — 2 466

Equity attributable to equity holders of the parent 497 734 — — 2 549 — 500 283

Minority interest 80 079 — — 536 — 80 615

Total equity 577 813 — — 3 085 — 580 898


Long-term borrowings 245 330 — — — — 245 330

Deferred tax liability 469 — — — — 469

245 799 — — — — 245 799

Current liabilities

Trade and other payables 775 273 (6 975) — — — 768 298

Provisions — 6 975 — — — 6 975

Short-term borrowings 61 931 — — — — 61 931

Deferred income 9 144 — — — — 9 144

Tax liabilities 2 652 — — — — 2 652

Loan from associate — — — — 329 329

Bank overdrafts 20 279 — — — — 20 279

869 279 — — — 329 869 608

Total liabilities 1 115 078 — — — 329 1 115 407

Total equity and liabilities 1 692 891 — — 3 085 329 1 696 305

99



Reconciliation of equity reported under previous GAAP to equity under IFRS:

GROUP COMPANY

2005 R000

1 July 2004R000

2005 R000

1 July 2004 R000

Total equity previous GAAP 577 813 522 463 401 662 400 676

IFRS 1 First-time adoption of IFRS

>> Retained earnings (7 783) (7 783) — —

>> Foreign currency translation reserve 7 783 7 783 — —

IFRS 2 Share-based payment

>> Retained earnings (4 297) (2 664) (4 297) (2 664)

>> Ordinary share premium 4 297 2 664 4 297 2 664

IAS 16 Property, plant and equipment

>> Reduction in depreciation 4 336 3 415 2 030 1 705

>> Tax effect on the above (1 251) (1 024) (583) (512)

Total equity IFRS 580 898 524 854 403 109 401 869

The 2005 company income statement has been restated as follows:

COMPANY INCOME STATEMENT

PreviousGAAP R000

IAS 1 R000

IAS 16 R000

IFRS 2 R000

RestatedIFRS

R000

Revenue 1 292 149 — — — 1 292 149

Cost of sales (1 053 397) — — — (1 053 397)

Gross profit 238 752 — — — 238 752

Other income 14 836 — — — 14 836

Distribution, administrative and other operating expenses (217 723) (9 048) (51) (1 632) (228 454)

EBITDA* 35 865* * (51)* (1 632)* *

Depreciation (9 423) 9 048 375 — —

Profit from operations 26 442 — 324 (1 632) 25 134

Investment revenues 52 957 — — — 52 957

Finance costs (10 430) — — — (10 430)

Other gains and losses (11 835) — — — (11 835)

Profit before tax 57 134 — 324 (1 632) 55 826

Income tax expense (11 469) — (71) — (11 540)

Profit for the year 45 665 — 253 (1 632) 44 286

*In line with IAS 1, EBITDA would not be appropriate.


100



The 2005 company balance sheet has been restated as follows:

COMPANY BALANCE SHEET

PreviousGAAP R000

IAS 16 R000

IFRS 2 R000

IAS 1 R000

RestatedIFRS

R000

ASSETS

Non-current assets

Property, plant and equipment 18 451 2 030 — — 20 481

Investments in subsidiaries 137 305 — — 11 143 148 448

Investments in associates 11 045 — — — 11 045

Investment in joint venture 1 500 — — — 1 500

Other investments and loans 174 266 — — — 174 266

Non-current trade receivables 13 233 — — — 13 233

Deferred tax asset 13 987 (583) — — 13 404

369 787 1 447 — 11 143 382 377

Current assets

Inventories 293 257 — — — 293 257

Trade and other receivables 41 691 — — — 41 691

Foreign currency assets 6 353 — — — 6 353

Tax assets 10 414 — — — 10 414

Bank balances and cash 217 757 — — — 217 757

569 472 — — — 569 472

TOTAL ASSETS 939 259 1 447 — 11 143 951 849



Share capital 837 — — — 837

Capital reserves 81 270 — 4 297 — 85 567

Preference share capital 265 — — — 265

Preference share premium 4 000 — — — 4 000

Retained earnings 315 290 1 447 (4 297) — 312 440

Total equity 401 662 1 447 — — 403 109


Long-term borrowings 22 787 — — — 22 787

Current liabilities

Trade and other payables 504 905 (4 485) — — 500 420

Provisions — 4 485 — — 4 485

Loans to subsidiaries — — — 11 143 11 143

Short-term borrowings 761 — — — 761

Deferred income 9 144 — — — 9 144

514 810 — — 11 143 525 953

Total liabilities 537 597 — — 11 143 548 740

TOTAL EQUITY AND LIABILITIES 939 259 1 447 — 11 143 951 849

33. CAPITAL EXPENDITURE

The Group and company does not have any significant planned capital expenditure in the near future.

ANNEXURE AINVESTMENTS IN SUBSIDIARIES

Ownership interest

Shares at cost

Loans to (from)

Net investment

2006%

2005%

2006R000

2005R000

2006R000

2005R000

2006R000

2005R000

DIRECT

Unlisted

Brotek (Pty) Limited ù ß 100 70 63 364 32 640 — — 63 364 32 640

Makeshift 1000 (Pty) Limited ∂ π ù 100 100 10 698 10 698 46 114 45 241 21 789 20 926

Tradeselect 38 (Pty) Limited c ù 100 100 3 400 3 400 14 230 14 230 17 630 17 630

Quickstep 94 (Pty) Limited ∂ π ù 100 100 2 581 2 581 23 396 23 347 25 977 25 928

CIS Thuthukani Technology(Pty) Limited (Comp Import) U c ß 100 100 6 793 6 793 — 2 314 6 793 9 107

Mustek Limited Company Limited + c 100 100 — — 1 741 1 741 259 583

Mandarin Trading House (Pty) Limited * c 100 100 — — 22 22 22 22

Mecer East Africa Limited U! c 100 51 2 169 132 4 348 78 6 517 210

Mecer (EPZ) Limited U! 100 51 2 833 2 833 — — 2 833 2 833

Mecer Digital Do Brasil Limited $ c 100 100 33 200 33 200 155 155 33 355 33 355

Lithatek Investments (Pty) Limited Ö ∂ c ù 100 100 19 448 19 448 2 465 3 216 — —

MFS Technologies (Pty) Limited ß c 100 100 — — 2 314 — 2 314 —

Quickstep 95 (Pty) Limited * 100 100 — — — — — —

Mustek Electronics (Cape Town) (Pty) Limited * c 100 100 3 229 3 229 (6 575) (6 575) (3 346) (3 346)

Mustek Electronics (Durban) (Pty) Limited * c 100 100 1 658 1 658 (3 301) (3 301) (1 643) (1 643)

Mustek Electronics (Port Elizabeth) (Pty) Limited * c 100 100 327 327 (1 213) (1 213) (886) (886)

Mustek Investments (Pty) Limited * 100 100 — — — — — —

Mustek International (Pty) Limited * 100 100 — — — — — —

Mustek Management (Pty) Limited * 100 100 — — — — — —

Mecer (Pty) Limited * 100 100 — — — — — —

Planet Internet (Pty) Limited * 100 100 — — — — — —


101

102 ANNEXURE A (continued)

INVESTMENTS IN SUBSIDIARIES (continued)

Ownership interest

Shares at cost

Loans to (from)

Net investment

2006%

2005%

2006R000

2005R000

2006R000

2005R000

2006R000

2005R000

INDIRECT

Unlisted

Rectron Limited c ß 65,8 65,8 — — (54) (54) (54) (54)

Rectron Australia (Pty) Limited @ 50 50 — — — — — —

Rectron Plc = — 100 — — — — — —

Corex IT Distribution Dynamics (Pty) Limited ß 60 60 — — — — — —

Formprops 110 (Pty) Limited U 100 — — — — — — —

Sheerprops 69 (Pty) Limited U 100 — — — — — — —

Axper Technologies (Pty) Limited (previously IT Depot (Pty) Limited) — 100 — — — — — —

Soft 99 (Pty) Limited U v ß 68 68 — — — — — —

Mecer Inter-Ed (Pty) Limited U v ß 100 90 — — — — — —

First Campus (Pty) Limited * 100 100 — — — — — —

Brobusmac Investments (Pty) Limited U 100 100 — — — — — —

Datazone Limited € c 100 100 — — (712) — (712) —

PWS Investments (Pty) Limited ù 100 100 — — — — — —

Inter-Ed (Pty) Limited * 100 100 — — — — — —

149 700 116 939 82 930 79 201 174 212 137 305

Mecer Inter-Ed supplies educational software solutions to its customers. The other trading subsidiaries’ activities comprise the procurement, assembly, distribution and servicing of computers and printers, related components and allied products. A list of the number of shares that is held in each subsidiary is available at the registered office of the company.

∂ These loans have been subordinated in favour of all other creditors of the subsidiary. Except for the Quickstep 94 (Pty) Limited loan, the loans have been partially impaired.

c These loans are interest free and have no fixed terms of repayment.π These loans bear interest at prime and have no fixed terms of repayment.* Dormant companies registered and incorporated in South Africa.! Active trading company registered and incorporated in Kenya.$ Active trading company registered and incorporated in Brazil.= Active trading company registered and incorporated in the United Kingdom put into liquidation during the year.@ Active trading company registered and incorporated in Australia.+ Active trading company registered and incorporated in Taiwan.ù Non-trading investment company or property company registered and incorporated in South Africa.€ Non-trading investment company or property company registered and incorporated in the United States of America.ß Active trading company registered and incorporated in South Africa.Ö All the investments in Lithatek (Pty) Limited have been impaired and as a result the Group impaired its goodwill on the

consolidation of the company.v Goodwill arising on acquisitions were fully impaired at acquisition date.U The Group increased its shareholding in Brother Business Machines (Pty) Limited, Mecer East Africa Limited and Mecer (EPZ)

Limited on 1 July 2005. The Group also acquired 100% of Formprops 110 (Pty) Limited and Sheerprops 69 (Pty) Limited on 1 March 2006. An additional R30,7 million was invested in Brother Business Machines (Pty) Limited, R2,0 million in Mecer East Africa Limited and R7,7 million in Formprops 110 (Pty) Limited and Sheerprops 69 (Pty) Limited. Brother Business Machines (Pty) Limited, MecerEast Africa Limited and Mecer (EPZ) Limited were consolidated in the past and Formprops 110 (Pty) Limited and Sheerprops 69 (Pty) Limited contributed an immaterial amount to the revenue and profit of the Group. The Group increased its shareholding in CIS Thuthukani (Pty) Limited, Soft 99 (Pty) Limited and Mecer Inter-Ed (Pty) Limited on 21 October 2004, 1 July 2004 and 26 January 2005 respectively. An additional R0,8 million was invested in Mecer Inter-Ed (Pty) Limited and R1,7 million in CIS Thuthukani (Pty) Limited. Mecer Inter-Ed (Pty) Limited and CIS Thuthukani (Pty) Limited were consolidated in the past and Soft 99 (Pty) Limited contributed an immaterial amount to the profit of the Group in the previous financial year.



103ANNEXURE BINVESTMENTS IN ASSOCIATES

Percentageholding Cost

Loans to (from)

Equity accounted share of earnings

Net investment

2006%

2005%

2006R000

2005R000

2006R000

2005R000

2006R000

2005R000

2006R000

2005R000

COMPANY

Unlisted

Zinox Technologies Limited ∏ 30,0 30,0 4 088 4 088 8 250 6 957 — — 12 388 11 045

Mustek Zimbabwe Private Limited t — — 4 189 4 189 — — — — — —

8 277 8 277 8 250 6 957 — — 12 338 11 045

GROUP

Unlisted

Preworx (Pty) Limited ∏ 38,0 38,0 24 447 24 447 9 958 9 095 (4 097) (4 097) 9 958 9 095

Netshield (Pty) Limited ∏ 31,0 31,0 287 287 138 (329) 345 152 770 110

A Open (Pty) Limited 43,0 43,0 — — — — — — — —

Civon Corporation 30,0 30,0 10 485 10 485 — — (7 485) (7 485) — —

Zinox Technologies Limited 30,0 30,0 — — — — 5 491 1 024 5 491 1 024

Mustek Zimbabwe Private Limited t — — — — — — — — — —

43 496 43 496 18 346 15 723 (5 746) (10 406) 28 557 21 274

The net investment is after impairment charges against the investments and loans of R27 539 000 (2005: R27 539 000) for the Group and R4 189 000 (2005: R4 189 000) for the company.

Additional information Nature of businessCountry ofincorporation

Period equity accounted

Preworx (Pty) Remote access diagnostics technology South Africa 12 months

A Open (Pty) Limited Dormant South Africa 12 months

Civon Corporation Digital picture surveillance systems technology USA 12 months

Netshield (Pty) Limited Research and development of network communication equipment South Africa 9 months

Zinox Technologies Limited Computer assembly and distribution Nigeria 12 months

Mustek Zimbabwe Private LimitedAssembly and distribution of computers and computer components Zimbabwe 12 months

∏ These loans bear interest at prime, have no fixed terms of repayment and are repayable on demand.t On 1 July 2002 Mustek disposed of Mustek Zimbabwe. The purchaser irrevocably granted Mustek an option to purchase at any

time 40% of the entire issued share capital of Mustek Zimbabwe for a nominal value and, as a result, the option investment is treated as an equity investment in an associate company. Due to the hyperinflationary environment in Zimbabwe and the dramatic annual devaluation of the Zimbabwean Dollar the current and prior year effect of equity accounted results from Zimbabwe are immaterial. It was decided to impair the 40% option in the previous financial year.



104 ANNEXURE COTHER INVESTMENTS AND LOANS

Ownership interest

Shares at cost

Loans to (from)

Net investment

2006%

2005%

2006%

2005%

2006R000

2005R000

2006R000

2005R000

COMPANY

Unlisted

Puno Printing Solutions Investments (Pty) Limited ✡ — — — — 614 — 614 —

Option – Mecer Capital (Pty) Limited (see note 18) ù — — 250 250 — — 250 250

Ritzshelf 97 (Pty) Limited (see note 18) ù — — 203 754 163 516 — — 203 754 163 516

Mecer Capital (Pty) Limited ù — — — — 9 000 9 000 9 000 9 000

L van der Bijl Family Trust # — — — — 1 000 750 1 000 750

Marburg Family Trust # — — — — 1 000 750 1 000 750

204 004 163 766 11 614 10 500 215 618 174 266

GROUP

Unlisted

Casetek International Co Limited Ø 8,0 8,0 5 514 5 440 — — — 1 004

Atio Corporation (Pty) Limited ❡ — 4,4 — 3 832 — — — —

Datazone Trust * — — — — 1 039 1 703 — 664

Mettle Finance (Pty) Limited (see note 17) ù — — (203 754)(162 866) — — (203 754)(162 866)

Mecer Capital (Pty) Limited ù — — — — (9 000) (9 000) (9 000) (9 000)

Firefly 91 Investments (Pty) Limited ù — — — — 25 000 — 25 000 —

Firefly 91 Investments (Pty) Limited ù — — — — (25 000) — (25 000) —

KGM 69 (Pty) Limited ù — — — — — 18 500 — 18 500

KGM 69 (Pty) Limited ù — — — — — (18 500) — (18 500)

Wavetrend Technologies Limited U — — — — — — (24 004) 22 366

5 764 10 172 3 653 3 203 26 868 26 434

Note:* These loans are interest free and have no fixed terms of repayment.# These loans bear interest at 72% of prime and are repayable on demand.✡ These loans bear interest at prime and are repayable as soon as sufficient dividends are declared by Brother Business Machines

(Pty) Limited.U Mustek has an option to acquire 14,6% of the issued shares in Wavetrend Technologies Limited at par. In line with a recent

subscription for shares in the company, the option was valued at R24,0 million (2005: R22,4 million).ù In terms of funding structures the Group has in three of its entities, Mustek Limited, Rectron (Pty) Limited and Comztek

(Pty) Limited, and the accounting interpretation of these structures as entities that should be consolidated, these amounts receivable and payable are set off and the difference, if any, on setting off represents the remaining portion of future finance costs at a consolidated level. See note 18 for more information.

❡ R0,8 million of the prior year impairment has been reversed on disposal of the investment.Ø The investment has been fully impaired during the year.


105


Notice is hereby given that the nineteenth annual general meeting of the company will be held at Mustek Limited’s head office at 322 15th Road, Randjespark, Midrand at 10:00 on Thursday, 23 November 2006 for the following purposes:

1. To consider and approve the annual financial statements for the year ended 30 June 2006.

2. To re-elect director D C Kan who retires in terms of the company’s Articles of Association, but being eligible, offer himself for re-election.

3. To re-elect director Y T Wang who retires in terms of the company’s Articles of Association, but being eligible, offer himself for re-election.

4. To re-elect director M E Gama who retires in terms of the company’s Articles of Association, but being eligible, offer himself for re-election.

5. To confirm the remuneration of the directors for the year under review.

6. To authorise the directors to determine the auditors’ remuneration for the year under review.

7. To confirm the re-appointment of Deloitte & Touche as the company’s auditors.

8. To approve the interim dividend of 35 cents per share and the final dividend of 25 cents per share.

9. To consider, and if deemed fit to pass, with or without modification, the following ordinary and special resolutions:

Ordinary resolution number 1

Resolved that 4 000 000 ordinary shares in the authorised but unissued share capital of the company be and are hereby placed under the control of the directors of the company as a general authority in terms of section 221(2) of the Companies Act, 61 of 1973, as amended, for the allotment and issue of shares.


Resolve that the company’s directors be hereby authorised by way of a general authority to issue unissued shares in the company for cash at the discretion of the directors, as and when suitable opportunities arise, subject to the Listings Requirements of the JSE, which currently provide, inter alia:

>> that this authority will be valid until the company’s next annual general meeting or for 15 months from the date of this ordinary resolution number, whichever period is shorter; [5.50(b)];

>> that a paid press announcement, giving full details including the impact on net asset value and earnings per ordinary share, will be published at the time of any issue representing on a cumulative basis within one year, 5% or more of the number of shares of that class in issue prior to the issues;

>> the securities will be of a class already in issue;

>> that issues in the aggregate will not exceed, in any financial year of the company, 10% of the number of ordinary shares in the company’s issued share capital;

>> in determining the price at which an issue of shares can be made in terms of this authority, the maximum discount at which the ordinary shares may be issued is 10% of the weighted average traded price of the shares in question, over the 30 day period prior to the date that the price of the issue is determined or agreed by the directors of the company; and

>> that any such issue will only be made to public shareholders and excluding related parties, as defined by the JSE [5.52(b)].

The approval of 75% of the votes cast by shareholders present or represented by proxy at this meeting is required for this ordinary resolution to become effective.


Resolve that the following amendment to the Mustek Executive Share Trust be approved and adopted by the company:

>> to provide that the definition of share price as defined in 1.1.21 of the Mustek Executive Share Trust that reads as follows:

“share price” means the price per share payable by a participant for scheme shares, which shall not be less than the middle market price on the trading day immediately preceding the day upon which the board will have resolved to direct the trustees to offer the relevant scheme shares to eligible applicants;

Notice of Annual General Meeting

106


Notice of Annual General Meeting(continued)

be amended to read as follows:

“share price” means the price per share payable by a participant for scheme shares, which price shall not be less than 90% of the volume weighted average closing market price for the 30 trading days preceding the date upon which the board will have resolved to direct the trustees to offer the relevant scheme shares to eligible applicants.

Special resolution number 1

Resolve that the company and its subsidiaries be and are hereby authorised, by way of a general authority, to acquire ordinary shares issued by the company, subject to the provisions of the Companies Act No 61 of 1973, as amended, the Listings Requirements of the JSE and the articles of association of the company, being that [5.72(b)]:

>> the repurchase of securities being affected through the order book operated by the JSE trading system and done without any prior understanding or arrangement between the company and the counter party [5.72(a)];

>> this general authority shall be valid only until the company’s next annual general meeting, or for 15 months from the date of this special resolution number 1, whichever period is shorter [5.72(c)];

>> an announcement will be published as soon as the company has acquired ordinary shares constituting, on a cumulative basis 3% or every 3% thereafter, of the number of ordinary shares in issue prior to the acquisition pursuant to which the aforesaid 3% threshold is reached, containing full details of such shares;

>> any general repurchase shall not in the aggregate in any one financial year exceed 20% of the company’s ordinary issued share capital [5.68];

>> in determining the price at which ordinary shares issued by the company will be acquired by the company and/or its subsidiaries in terms of this general authority, the maximum premium at which such ordinary shares may be acquired will be no more than 10% above the weighted average of the market value at which such ordinary shares are traded on the JSE, as determined over the five trading days immediately preceding the date of repurchase of such ordinary shares by the company and/or its subsidiaries;

>> the sponsor of the company provides a letter to the JSE on the adequacy of working capital in terms of section 2.12 of the JSE Listings Requirements, before the share repurchase commences;

>> at any point in time, may only appoint one agent to effect any repurchase on the company’s behalf;

>> the company may only undertake a repurchase of securities if, after such repurchase, it still complies with the shareholder spread requirements as set out in the JSE Listings Requirements;

>> the company or its subsidiaries may not repurchase securities during a prohibited period, as defined in the JSE Listings Requirements; and

>> that such authority is limited to paragraphs 5.72(c) and 5.84(a) (when derivatives are used), which states the following:

5.72(c) Approval by shareholders in terms of a special resolution of the company, in annual general/general meeting, which shall be valid only until the next annual general meeting or for 15 months from the date of the resolution, whichever period is shorter.

5.84(a) With regard to the price of the derivative the:

i. the strike price of any put option written by the company less the value of the premium received by the company for that put option may not be greater than the fair value of a forward agreement based on a spot price not greater than that stipulated in 5.72(d);

ii. the strike price of any call option may be greater than that stipulated in 5.72(d) at the time of entering into the derivative agreement, but the company may not exercise the call option if it is more that 10% “out the money”; and

iii. the strike price of the forward agreement may be greater than the price indicated in 5.72(d) but limited to the fair value of a forward agreement calculated from a spot price not greater than stipulated in 5.72(d).

107


5.72(d) A further announcement must be made when the derivative transactions entered into are exercised and due to the exercise of these transactions the effected repurchases are greater than 3% of the initial number of securities, and for each 3% in aggregate of the affected repurchase thereafter. This announcement must be made as soon as possible and in any event by not later than 08:30 on the second business day following the day on which the relevant threshold is reached or exceeded.

The board of directors of Mustek will use this authority as and when opportunities arise [11.26(c)].

Having considered the effect of the maximum repurchase of 20% of the company’s issued share capital in any one financial year, the directors are of the opinion that:

>> the company and the Group will, after payment for such maximum repurchase, be able to repay its debts in ordinary course of business for a period of 12 months following the date of the annual general meeting;

>> the company’s and the Group’s consolidated assets, fairly valued according to generally accepted accounting practice and on a basis consistent with the last financial year of the company, will, after such payment, exceed their consolidated liabilities for a period of 12 months following the date of the annual general meeting;

>> the company’s and the Group’s ordinary share capital and reserves will, after such payment, be sufficient to meet their needs for a period of 12 months following the date of the annual general meeting; and

>> the company and the Group will, after such payment, have sufficient working capital to meet its needs for a period of 12 months following the date of the annual general meeting.

Reason for and effect of the special resolution

The effect of this special resolution and the reason therefore is to grant the company and its subsidiaries a general approval in terms of the Companies Act No 61 of 1973, as amended, for the acquisition by the company of its own shares and/or acquisition by a subsidiary of shares in the company, which general approval shall be valid until the next annual general meeting of the company, provided that this general authority shall be valid only until the company’s next annual general meeting or for 15 months from the date of this special resolution number 1, whichever period is shorter. Such general authority will provide the board with the flexibility to repurchase shares should same be in the interest of the company at any time while the general authority subsists.

Special resolution number 2

Resolve that paragraph 84.5.5 of the Articles of Association of the company that reads as follows:

At the election of the company, the preference share/s shall immediately be cancelled for a cancellation value of R1,00 (one Rand) in the following circumstances:;

be and are hereby amended to read as follows in the circumstances contemplated in clause 84.5.5.7:

At the election of the company, the preference share/s shall immediately be cancelled for a cancellation value of R5 000 000,00 (five million Rand).

Reason for and effect of the special resolution

The reason for the special resolution is to acknowledge the contribution made by Safika Holdings (Pty) Limited. The effect of the resolution is that the preference share will be cancelled for a cancellation value of R5 000 000 (five million Rand) which equals the subscription price of the preference share.

Other disclosure in terms of Section 11.26 of the JSE Listings Requirements

– Directors and management (page 22)

– Major shareholders of Mustek Limited (page 36)

– Directors’ interests in securities (page 31)

– Share capital of Mustek Limited (page 81)

108


Notice of Annual General Meeting(continued)

1.1 Material change

Other than the facts and developments as referred to on page 38 of the annual report, there have been no material changes in the affairs or financial position of Mustek Limited and its subsidiaries since the date of signature of the audit report and the date of this notice.

1.2 Directors’ responsibility statement

The directors, whose names are given on page 22 of the annual report, collectively and individually accept full responsibility for the accuracy of the information pertaining to the special resolution and certify that to the best of their knowledge and belief there are no facts that have been omitted which would make any statement false or misleading, and that all reasonable enquiries to ascertain such facts have been made and that this resolution contains all such information.

1.3 Litigation statement

In terms of section 11.26 of the Listings Requirements of the JSE, the directors, whose names are given on page 22 of the annual report of which this notice forms part, are not aware of any legal or arbitration proceedings, including proceedings that are pending or threatened, that may have or have had in the recent past, being at least the previous 12 months, a material effect on the Group’s financial position.

VOTING

Any member entitled to vote at the annual general meeting may appoint a proxy or proxies to attend, speak and vote in his stead and the person/persons so appointed need not be a member/members of the company.

If you are a certificated or own name dematerialised shareholder and unable to attend the annual general meeting of ordinary shareholders to be held at 10:00 on Thursday, 23 November 2006 at Mustek Limited’s head office at 322 15th Road, Randjespark, Midrand and wish to be represented thereat, you must complete and return the attached form of proxy in accordance with the instructions therein.

If you have dematerialised your shares with a Central Securities Depository Participant (“CSDP”) or broker (ie not own name dematerialised shareholders) you must arrange with them to provide you with the necessary authorisation to attend the annual general meeting or you must instruct them as to how you wish to vote in this regard. This must be done in terms of the agreement entered into between you and the CSDP or broker, in the manner and by the cut-off time stipulated by your CSDP or broker.

Additional proxy forms are obtainable from the company secretary and must be deposited at the registered office of the company or the transfer secretaries not less than 48 hours before the meeting (Saturdays, Sundays and public holidays excluded).

By order of the board

C J Coetzee

Midrand

16 October 2006

109


Mustek Limited(Incorporated in the Republic of South Africa) (Registration number: 1987/070161/06)

Share code: MST ISIN: ZAE000012373

(“Mustek” or “the company”)

For the use by certificated shareholders or dematerialised shareholders registered with own-name registration only, at the general meeting of shareholders of the company to be held at Mustek’s head office at 322 15th Road, Randjespark, Midrand on Thursday, 23 November 2006 commencing at 10:00.

Dematerialised shareholders holding shares other than with own-name registration, must inform their CSDP or broker of their intention to attend the general meeting and request their CSDP or broker to issue them with the necessary letter of representation to attend the general meeting in person and vote or provide their CSDP or broker with their voting instructions should they not wish to attend the general meeting in person. These shareholders must not use this form of proxy.

I/We(name/s in block letters)of(address)being the holders of shares in the capital of the company do hereby appoint (see note):

1. or failing him/ her,

2. or failing him/ her,

3. the Chairperson of the general meeting, as my/our proxy to act for me/us at the general meeting for purposes of considering and, if deemed fit, passing, with or without

modification, the resolutions to be proposed thereat and at each adjournment thereof; and to abstain from voting for and/or against the resolutions in respect of the shares registered in my/our name in accordance with the following instructions:

Number of shares

For Against Abstain

1. Adoption of the annual financial statements

2. Re-election of D C Kan as director

3. Re-election of Y T Wang as director

4. Re-election of M E Gama as director

5. Confirm the directors’ remuneration for the past financial year

D C Kan

H Engelbrecht

Y T Wang

W V Cuba

S N Mabaso

M F Hennessy

M E Gama

D Konar

6. Authorise directors to determine auditors’ remuneration

7. Confirm the re-appointment of Deloitte & Touche as the company’s auditors

8. Approve dividends for the year

Interim dividend

Final dividend

9. Ordinary resolution number 1: General authority to issue and allot 4 000 000 shares

10. Ordinary resolution number 2: That the company’s directors may issue unissued shares

11. Ordinary resolution number 3: Amendment of share price as defined by the Mustek Executive Share Trust

12. Special resolution number 1: That the company’s directors may purchase issued shares

13. Special resolution number 2: Amendment of Articles of Association Signed at on 2006 Signature Assisted by (where applicable)

Each shareholder is entitled to appoint one or more proxies (who need not be a shareholder of the company) to attend, speak and vote in place of that shareholder at the meeting.

Form of Proxy

110


NOTES

1. The form of proxy must only be used by shareholders who hold shares that are not dematerialised or who hold

dematerialised shares in their own name.

2. A shareholder entitled to attend and vote may insert the name of a proxy or the names of two alternative proxies of the

shareholder’s choice in the space provided, with or without deleting “the Chairperson of the general meeting”. A proxy

need not be a shareholder of the company. The person whose name stands first on the form of proxy and who is present

at the meeting will be entitled to act as proxy to the exclusion of those whose names follow.

3. A shareholder is entitled to one vote on a show of hands and, on a poll, one vote in respect of each share held.

A shareholder’s instructions to the proxy must be indicated by inserting the relevant number of votes exercisable by the

shareholder in the appropriate box(es). Failure to comply with this will be deemed to authorise the proxy to vote or to

abstain from voting at the general meeting as he deems fit in respect of all the shareholders’ votes.

4. A vote given in terms of an instrument of proxy shall be valid in relation to the general meeting notwithstanding the death

of the person granting it, or the revocation of the proxy, or the transfer of the shares in respect of which the vote is given,

unless an intimation in writing of such death, revocation or transfer is received by the transfer secretaries not less than

48 hours before the commencement of the general meeting.

5. If a shareholder does not indicate on this form that his proxy is to vote in favour of or against any resolution or to abstain

from voting, or gives contradictory instructions, or should any further resolution(s) or any amendment(s) which may

properly be put before the general meeting be proposed, the proxy shall be entitled to vote as he thinks fit.

6. The Chairperson of the general meeting may reject or accept any form of proxy which is completed and/or received other

than in compliance with these notes.

7. The completion and lodging of this form of proxy will not preclude the relevant shareholder from attending the meeting

and speaking and voting in person thereat to the exclusion of any proxy appointed in terms hereof, should such

shareholder wish to do so.

8. Documentary evidence establishing the authority of a person signing the form of proxy in a representative capacity must

be attached to this form of proxy, unless previously recorded by the company or unless this requirement is waived by the

Chairperson of the general meeting.

9. A minor or any other person under legal incapacity must be assisted by his/her parent or guardian, as applicable, unless

the relevant documents establishing his/her capacity are produced or have been registered by the company.

10. Where there are joint holders of shares:

– any one holder may sign the form of proxy; and

– the vote(s) of the senior shareholders (for that purpose seniority will be determined by the order in which the names

of shareholders appear in the company’s register of shareholders) who tenders a vote (whether in person or by proxy)

will be accepted to the exclusion of the vote(s) of the other joint shareholder(s).

11. Forms of proxy should be lodged with or mailed to Computershare Investor Services 2004 (Pty) Limited:

Hand deliveries to: Postal deliveries to:

Computershare Investor Services 2004 (Pty) Limited Computershare Investor Services 2004 (Pty) Limited

Ground Floor, 70 Marshall Street PO Box 61051

Johannesburg, 2001 Marshalltown, 2107

to be received by no later than 10:00 on Tuesday, 21 November 2006 (or 48 hours before any adjournment of the general

meeting which date, if necessary, will be notified in the press).

12. Any alteration or correction made to this form of proxy, other than the deletion of alternatives, must be initialled by the

signatory/ies.

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