Ayo: Nitpicking through a testimony

Abdul Malick Salie, the chief investment officer of Ayo Technology Solutions, presented a clear testimony to the commission of inquiry into allegations of impropriety regarding the Public Investment Corporation (PIC) on Tuesday.

In his testimony, Salie said that he resigned from the board of Ayo due to the “pressures, the media, the governance issues” that arose and that he wasn’t “comfortable in the environment and the pressures internally and externally”.

Read: Ayo valuation ‘stretched’ to meet Survé’s demands

Salie’s discomfort has no doubt increased as he reads the various published versions of what he said, and didn’t.

The media’s take

Business Day in its May 15 report headed “Survé ‘was personally involved’ in Ayo listing” stated that “Salie agreed with evidence leader Jannie Lubbe’s assessment that even this very generous and optimistic figure was effectively based on a ‘thumbsuck’.” The report said Salie further testified that: “Survé was of the view that the desired value of Ayo be set between R10 billion and R15 billion”.

The Star Business Report, under the headline “Ayo delivers value to its shareholders”, turned its focus on the deal with British Telecoms South Africa (BT-SA), and the fact that Ayo’s pre-listing valuation was based on the assumption that a deal with BT-SA would be done. There was no mention of Salie agreeing with Lubbe that the valuations were a thumbsuck, nor with Gill Marcus that the value of Ayo above R2.3 million was created by adjusting assumptions rather than real profits.

Moneyweb, under the heading “Ayo valuation ‘stretched’ to meet Survé’s demands”, was more blunt, reporting that “stretched”, “thumbsuck” and “manipulation” were among the words used to describe the “informal pre-listing valuation carried out by Ayo executives, which set the tone for how much the company was eventually valued at”.

Moneyweb further reported that Salie described “how, in the build-up to finalising the pre-listing statement, there were multiple upward revisions to the company’s valuation – from an initial estimated value of R2.3 billion to an expected value range of between R10 billion and R15 billion – at independent media owner Iqbal Survé’s behest”.

What is the reader to believe – was Survé instrumental in the initial estimated valuation of Ayo of R2.3 billion being stretched beyond that figure? Did Salie assert that Ayo is delivering value?

Did Salie state that Survé influenced Ayo’s R14.7bn valuation?

In his written statement, Salie refers to Survé’s expectations of the valuation of Ayo in paragraph 19: “During the listing period the team had various interactions and meetings with Survé who set the tone for the Pre-Listing Statement (PLS) and provided his expectation of the valuation of Ayo.” (My emphasis.)

Survé is further referred to in paragraphs 20, 21, 23, 24, 28, 29, and 55.

In paragraph 24 Salie avers that: “Survé was of the view that the desired value of Ayo be set between R10 billion and R15 billion”. And in paragraph 29 “Abdulla instructs me to revise the valuation upwards to R15 billion based on Survé’s input”.

It is apparent, based on Salie’s testimony, that Survé had a strong influence on the valuation of Ayo.

Ayo provides ‘clarification’

Paragraph 81 of Salie’s statement asserts: “On my estimation the current existing business for a full 12-month period will deliver R3 billion in revenue with an estimated R200 million cash profit, excluding BT (and excluding interest). This supplemented with the current acquisition pipeline and a revitalised BT relationship and current empowerment credentials can in my view deliver positive shareholder value.”

Later in the day, after Salie delivered his testimony, Ayo issued a Sens announcement to “clarify” this paragraph:

– the statement is the view of Salie in his personal capacity and was made without the knowledge or input of the Company;

– the statement is considered to be a profit forecast pertaining to the Company in terms of the Listings Requirements of JSE Limited;

– the statement has not been reviewed or reported on by AYO’s auditors; and

– the Company is not aware of the basis on which the numbers included in the statement were derived.

It is not clear how Ayo can “clarify” a witness’ testimony? But the deed is done.

Did Salie state that Ayo ‘delivers value’?

In paragraph 78 Salie states that the Ayo business “is in dire need of proper corporate governance and decision making structures, and the relationship with strategic shareholders requires to be remedied on an urgent basis”. (My emphasis.)

In paragraph 78 he states: “Should the above listed remedies be put in place and the teams refocus their attention on the promise(s) set out in the Pre-Listing Statement it is my view that Ayo will deliver shareholder value.” (My emphasis.)

It is obvious that Ayo needs to do some work before it delivers value.

What nobody seems to be saying

Salie’s written testimony provides other interesting insights, including that the forecasted profits of the existing Ayo companies and the profits that would result from the proposed BT/Ayo model would be R749 million and R1.05 billion (excluding existing minorities) in 2018 and 2019, and that “these profits were multiplied by a forward price earnings multiple of 20 and 14 for the respective years”, that this “amounted to a valuation of R14.7 billion” and further “The full valuation model of Ayo as reviewed and which was eventually signed off by Grant Thornton Auditors”.

Surely the auditors should be testifying at the commission?

Salie’s statement is available on the commission website here, and his testimony can be seen on YouTube here.