PIC tackles Ayo in court

People immediately started to question the motivation, wisdom and procedures when it became known that the Public Investment Corporation (PIC) had invested R4.3 billion on behalf of the Government Employees Pension Fund (GEPF) in Ayo Technology Solutions at the time of its JSE-listing in December 2017.

The questions were warranted. The R4.3 billion bought the PIC an interest of only 29% in Ayo, despite the sudden cash windfall being equal to 92% of the small computer company’s assets of R4.7 billion.

African Equity Empowerment Investments (AEEI) got the bulk of the shares, ending up with more than 49% of Ayo. Public shareholders owned the rest, just less than 22%.

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However, financial statements for the year to August 2017 disclosed that Ayo owned very little in the form of operating assets prior to the PIC’s investment. It made a profit of only R29 million in the 2017 financial year, according to the comparative figures presented in the 2018 annual report.

The GEPF’s R4.3 billion was by far the biggest asset, and interest on the money was the biggest source of profit for Ayo from 2018.

Years of allegations, media reports and investigations – including a formal commission of inquiry that investigated the PIC – resulted in the PIC eventually admitting that the investment in Ayo was a mistake.

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Ayo noted in its most recent annual report (for the year to end August 2022) that the PIC and GEPF are going to court to try and get the R4.3 billion back.

“The summons seeks a declaration that the subscription agreement entered into by the PIC with Ayo be declared unlawful and set aside and that Ayo be ordered to pay the PIC R4.3 billion together with interest of 10.25% per annum accrued from 22 December 2017 to date of final payment.

“Ayo has instructed its attorneys to oppose the action,” the company told its shareholders.

On Monday, Ayo issued a Sens announcement to inform shareholders that the court hearing will commence on Tuesday, 7 March.

The PIC issued a press statement to say that it intends to pursue its claim vigorously, but noted that it will not comment on the legal proceedings “out of respect for court proceedings”.

“Through its legal representatives, the PIC will present evidence to the court, which is the appropriate forum to assess the evidence and adjudicate on this matter. The PIC has an obligation and responsibility to ensure that appropriate action is undertaken to protect the value of assets under its management, for the benefit of its clients. The PIC will continue to do so through due and proper legal processes,” according to the statement.

Stable door

Litigation takes time, but to look to Ayo to repay the R4.3 billion five years after the event has given the horse time to stroll away at a leisurely pace.

Ayo’s annual financial statements for the years 2018 through 2022 show that most of the money is gone. The financial statements as at the end of August 2022 show that there is only R1.1 billion left.

The PIC is unlikely to get the full amount and interest on the money if the court rules in its favour.

At a rate of 10.25% per annum from the time of the investment in December 2017, the PIC will be seeking nearly R7 billion from Ayo.

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The figures say it all …

The computer and information technology company last made a profit before interest and tax in 2017, before AEEI and its parent, Sekunjalo Investment Holdings, became involved.

Ayo’s financials – 2017 to 2022

2017 2018 2019 2020 2021 2022
Revenue 478.7 638.9 1959 2885 1699 1755
Profit before interest and tax 46.1 -29.2 -38.9 -120.7 -49.4 -99.3
Interest -6.2 213 311.9 224.4 151.1 133.8
Earnings 29.7 147.9 181.8 31.9 -266.5 -258.1
Total dividend 17.1 103.2 175.5 344.1 329.9 326.9
Cash flow 37.6 4233 -624.5 -457.4 -1058 -1052
Cash at year end 71.1 4304 3679 3222 2164 1111

Source: Ayo annual reports

Ayo posted a loss before interest and tax in every year since the 2018 financial year.

It only reported profits after tax due to interest received on its big cash balance, but only until the 2020 financial year.

Its cash reserves – the PIC money – disappeared quickly.

By 2021, growing operational losses exceeded the interest received on dwindling cash resources. Ayo still paid dividends every year, and the group’s cash flow statements over the years illustrated without any doubt where the money came from.

Read: Loss-making Ayo doubles dividend

Ayo recorded a big net cash inflow of R4.2 billion in the year to August 2018, the proceeds of the private placing of shares with GEPF. It reported a negative cash flow of nearly R625 million in 2019, including gross dividends of more than R175 million.

The dividend remained high every year thereafter and cash flow remained negative. Ayo reported net cash outflow of more than R1 billion in each of the 2021 and 2022 financial years.

It only had R1.1 billion left at the end of August 2022, and probably has a few hundred million less by now. According to the balance sheet, the whole group had an equity value of only R3.1 billion, including intangible assets and goodwill.

Share price crash

The crash in the share price to R3.90 values the group at only R1.34 billion.

Ayo may not even survive. It doesn’t have enough money and does not make enough profit.

Yet it is undeterred. “The company has since been reconfigured into a technology holding company and will be able to continue to trade as such through the portfolio of investments it holds should the PIC and GEPF be successful in their application,” Ayo noted in its annual report.

“Certain subsidiaries of Ayo have been in existence for more than 20 years, delivering satisfactory trading performance and dividend income for Ayo. These subsidiaries are expected to continue trading at optimal levels independent of the PIC funding.”

Source: moneyweb.co.za