Wrap Text
Unaudited Interim Results For The Six Months Ended 28 February 2018
AYO Technology Solutions Limited
(Previously Sekunjalo Technology Solutions Limited)
(Incorporated in the Republic of South Africa)
Registration number: 1996/014461/06
JSE share code: AYO
ISIN ZAE000252441
("AYO" or the "Group" or the "Company")
UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 28 FEBRUARY 2018
Highlights compared to the prior year interim period
- Revenue increased by 49% from R234m to R349m
- Operating profit increased by 55% from R29m to R45m
- Profit before tax increased by 173% from R30m to R82m
- Earnings per share increased by 111% from 8.37 cents to 17.68 cents
- Total assets increased from R188m to R4 583m
- Total assets of the underlying subsidiaries of AYO increased by 98% from R139m to R275m
- Net asset value increased from R18m to R4 356m
- Net cash generated from operating activities increased by 16% from R16m to R19m
Overview
AYO is well positioned on the Johannesburg Stock Exchange ("JSE") as a leading black economic empowerment ("BEE") information and communications
technology ("ICT") company with strong management expertise and a sound track record. The current improving market conditions and regulation
pertaining to BEE have set AYO in good stead to capture the growing ICT spend across the South African market. AYO is currently servicing customers
in Southern and Northern Africa, Europe and Mauritius. Its strategic alliance, with British Telecommunications South Africa ("BTSA"), provides it
with access to global technology trends as well as access to the global market.
AYO is fully compliant in terms of the new Broad-Based Black Economic Empowerment ("B-BBEE") Act, 53 of 2002 as amended, ICT Sector Codes and has
exceeded all the minimum requirements.
Having successfully listed on the JSE on 21 December 2017, AYO has effectively been listed for two months of this reporting period, however in the
five months since Listing AYO has already shown excellent organic progress in delivering on its strategy presented in its pre-listing statement,
issued on 13 December 2017 ("Pre-Listing Statement").
In the short time frame since Listing, AYO has had a successful first half operational performance, although certain key projects and transactions
are still being finalised resulting in AYO management expecting a much improved and accelerated performance in the second half of the current
financial year. Following extensive market engagements and the continued positive reception to AYO’s strategy by customers and acquisitions targets,
certain of the processes and timelines have been extended to take better advantage of this strong goodwill in the market. Although not ideal, this
could result in our current period results not meeting the expectation set out in the Pre-listing Statement, but in the long term will be highly
beneficial to our shareholders and all stakeholders. In light of this, management are confident that all activities will result in the full year
2019 results meeting and/or exceeding expectations set out in the Pre-listing Statement
The strategy as set out in the Pre-listing Statement was set to capture 5 - 8% of the vast South African ICT market by 2022. This would be achieved
by exploiting AYO's competitive advantages, namely its empowerment credentials, global alliances and strong management and by expanding its existing
service offering through organic growth as well as strategic and synergistic acquisitions. Within the first five months of AYO being listed, the
Company has concluded a significant contract with a multinational client, further details of which are expected to be announced over the coming days.
In this regard shareholders are referred to this cautionary announcement published on 18 April 2018.
AYO's acquisition strategy will compliment and augment its "Go to Market" strategy, as outlined in the Pre-listing Statement. The Group with its
Digital Ecosystem, comprises of AYO Platforms, AYO Digital and AYO Industries and is in advanced discussions with several complementary acquisition
targets which will augment its "Go to Market" strategy and which will be announced in due course.
AYO has attracted and is attracting leading brands to its Digital Ecosystem which will enable AYO to significantly disrupt the ICT market.
These brands will look to leverage off AYO's market leading B-BBEE credentials and will position AYO in new market segments. One of AYO's major
competitive advantages is that it has no legacy business or overhead structures preventing it from building a market leading digital capability for
its customers, whereby it will create broad-based stakeholder value.
Reporting entity
The consolidated interim financial statements for the six months ended 28 February 2018 comprises of AYO, the Company and its subsidiaries.
AYO listed on the main board of the JSE on 21 December 2017. Accordingly, the comparative interim results reflect the six months ended 28 February 2017,
which was prior to the Listing. The 28 February 2018 interim results only reflect two months of trading since the Listing.
As a result of the Listing the issued share capital of AYO increased from 212 382 539 to 346 511 621 ordinary shares.
CONDENSED GROUP STATEMENT OF FINANCIAL POSITION
Unaudited at Unaudited at Audited at
28 February 2018 28 February 2017 31 August 2017
R'000 R'000 R'000
Assets
Non-Current Assets 70,346 69,962 78,401
Property, plant and equipment 6,729 8,115 7,118
Goodwill 43,411 41,540 43,411
Intangible assets 13,276 4,175 12,506
Investments in joint ventures 33 33 33
Investments in associates - 319 -
Loans to group companies 4,780 2,855 4,552
Other financial assets 747 1,134 747
Operating lease asset 12 - -
Deferred tax 1,358 11,791 10,034
Current Assets 4,512,711 118,467 214,010
Inventories 37,546 6,774 9,702
Trade and other receivables 160,756 59,450 110,428
Other financial assets 71,449 9,186 19,266
Current tax receivable 680 1,256 384
Cash and cash equivalents 4,242,280 41,801 74,229
Total Assets 4,583,057 188,429 292,411
Equity and Liabilities
Equity
Equity Attributable to Equity Holders of Parent
Share capital 4,449,409 178,704 184,129
Reserves 11,805 (2,476) (4)
Retained income (104,351) (158,019) (151,787)
4,356,863 18,209 32,338
Non-controlling interest 40,658 31,412 34,752
4,397,521 49,621 67,090
Liabilities
Non-Current Liabilities 31,738 82,579 83,196
Loans from group companies 29,748 70,774 80,597
Other financial liabilities 38 10,764 50
Finance lease liabilities 1,952 - 2,549
Deferred tax - - -
Operating lease liability - 488 -
Non-current liabilities of disposal - 553 -
Current Liabilities 153,795 56,229 141,765
Trade and other payables 128,710 36,205 108,505
Loans from shareholders 69 304 69
Other financial liabilities 8,268 6,647 5,692
Finance lease liabilities - - 259
Operating lease liability 356 56 305
Deferred income 1,213 (2,389) 2,981
Current tax payable 3,827 2,749 8,372
Provisions 8,166 11,017 12,473
Bank overdraft 3,189 1,640 3,109
Liabilities of disposal groups - - 360
Total Liabilities 185,536 138,808 225,321
Total Equity and Liabilities 4,513,057 188,429 292,411
Net asset value per share (cents) 1,257.35 8.57 15.23
Net tangible asset value per share (cents) 1,240.99 (12.95) (11.10)
Number of shares in issue 346,511,621 212,382,539 212,382,539
CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME
Unaudited to Unaudited to Audited to
28 February 2018 28 February 2017 31 August 2017
6 months 6 months 12 months
R'000 R'000 R'000
Revenue 348,672 233,822 478,663
Cost of sales (223,859) (149,636) (319,921)
Gross profit 124,813 84,186 158,742
Other income 3,452 3,850 13,274
Operating expenses (83,576) (59,235) (125,263)
B-BBEE share based payment expense (11,809) - -
Operating profit 44,689 28,801 46,753
Investment revenue 38,220 1,517 2,400
Finance costs (1,324) (707) (8,804)
Income from equity accounted investments - - (679)
Profit before taxation 81,585 29,610 39,670
Taxation (15,646) (6,485) (12,822)
Profit from continuing operations 65,939 23,125 26,848
Discontinued operations - - -
Profit from discontinued operations - - 2,810
Profit for the year 65,939 23,125 29,658
Other comprehensive income for the year net of taxation (5) - (4)
Total comprehensive income for the year 65,934 23,125 29,654
Total comprehensive income attributable to:
Owners of the parent 47,431 17,729 16,672
Non-controlling interest 18,503 5,396 12,982
Basic and diluted earnings per share (cents) 17.68 8.37 7.86
Headline earnings and diluted headline earnings per share (cents) 17.36 8.37 5.66
Weighted (and fully diluted) average number
of ordinary share in issue 268,269,657 211,774,776 212,078,657
CONDENSED STATEMENT OF CHANGES IN EQUITY
For the six months ended 28 February 2018
Total attributable Non-controlling
to equity holders Total equity
of the group interest Total equity
R'000 R'000 R'000
Balance at 01 September 2016 (749) 17,852 17,103
Profit for the year 16,676 12,982 29,658
Other comprehensive income (4) - (4)
Total comprehensive income for the year 16,672 12,982 29,654
Dividends - (5,985) (5,985)
Business combinations 16,416 9,902 26,318
Total contributions by and distributions to owners of company recognised directly in equity 16,416 3,918 20,334
Balance at 01 September 2017 32,339 34,751 67,090
Profit for the year 47,435 18,503 65,938
Other comprehensive income - - -
Total comprehensive income for the year 47,435 18,503 65,938
Issue of shares 4,343,594 - 4,343,594
Capitalised listing costs 78,314 - (148,314)
B-BBEE Consortium Shares 11,809 - 11,809
Dividends - (12,597) (12,597)
Total contributions by and distributions to owners of company recognised directly in equity 4,265,280 (12,597) 4,252,683
Balance at 28 February 2018 4,356,863 40,658 4,397,521
CONDENSED GROUP STATEMENT OF CASH FLOWS
Unaudited to Unaudited to Audited to
28 February 2018 28 February 2017 31 August 2017
6 months 6 months 12 months
R'000 R'000 R'000
Cash flows from operating activities
Cash generated from operations (5,978) 19,130 53,170
Interest income 38,220 1,517 2,579
Finance costs (1,324) (707) (8,804)
Tax paid (12,152) (3,917) (6,955)
Net cash from operating activities 18,644 16,023 39,990
Cash flows from investing activities
Net purchase and sale of property, plant and equipment (1,119) (7,082) (3,287)
Increase in internally generated intangible assets (1,148) (2,372) (1,205)
Business combinations - (6,601) (1,559)
Proceeds from disposal of subsidiary - - 17,140
Net repayment of loans from group companies (51,084) - -
Proceeds from group companies - - 10,483
Purchase of financial assets 51,274 6,992 (13,612)
Net cash from investing activities (104,624) (9,063) 7,960
Cash flows from financing activities
Net proceeds on share issue 4,265,280 - -
Net proceeds from other financial liabilities 2,064 10,475 265
Repayment of shareholders loan (79) (2,582) (530)
Purchase of other financial assets - - (3,256)
Finance lease payments (856) (679) (886)
Dividends paid (12,457) (5,099) (5,985)
Acquisition of additional shares in
subsidiary in terms of a rights issue (2476)
Net cash from financing activities 4,183,952 (361) (10,392)
Total cash movement for the year 4,167,971 6,599 37,558
Cash at the beginning of the year 71,120 33,562 33,562
Total cash at end of the year 4,239,091 40,161 71,120
CONDENSED SEGMENTAL REPORT
Software, Security
consulting & support Head office solutions
28 February 28 February 28 February
2018 2018 2018
6 months 6 months 6 months
R’000 R’000 R’000
Revenue 86,565 12,424 223,155
External sales 85,572 (137) 233,155
Intergroup sales 993 12,561 -
Operating profit/(loss) 13,943 (12,818) 39,192
Material items included in operating profit/(loss)
B-BBEE share based payment expense - (11,809) -
Listing costs - (5,677) -
Carrying amount of assets 82,260 4,308,573 15,109
Carrying amount of liabilities 42,795 29,664 96,461
Unified
Communication Group
28 February 28 February
2018 2018
6 months 6 months
R’000 R'000
Revenue 40,081 362,226
External sales 40,081 348,672
Intergroup sales - 13,554
Operating profit 4,371 44,688
Material items included in operating profit
B-BBEE share based payment expense - -
Listing costs - -
Carrying amount of assets 33,155 4,583,057
Carrying amount of liabilities 16,618 185,537
Software, Security
consulting & support Head office solutions
28 February 28 February 28 February
2017 2017 2017
6 months 6 months 6 months
R’000 R’000 R’000
Revenue 106,363 6,884 89,242
External sales 106,174 151 89,242
Intergroup sales 189 6,733 -
Operating profit 15,678 3,918 4,490
Material items included in operating profit
B-BBEE share based payment expense - - -
Listing costs - - -
Carrying amount of assets 75,618 49,299 30,518
Carrying amount of liabilities 20,737 84,070 11,316
Unified
Communication Group
28 February 28 February
2017 2017
6 months 6 months
R’000 R'000
Revenue 38,256 240,745
External sales 38,256 233,822
Intergroup sales - 6,922
Operating profit 4,716 28,800
Material items included in operating profit
B-BBEE share based payment expense - -
Listing costs - -
Carrying amount of assets 32,441 187,785
Carrying amount of liabilities 22,130 138,254
Determination of headline earnings
Unaudited to Unaudited to Audited to
28 February 2018 28 February 2017 31 August 2017
6 months 6 months 12 months
R’000 R’000 R’000
Earnings attributable to ordinary equity holders from continuing operations 47,431 17,729 13,862
Discontinued operations - - 2,810
Adjusted for: - - -
Loss/(profit) on sale of property and equipment (4) 2 8
Loss/(profit) on disposal of discontinued operations - - (4,670)
Impairment loss - - -
Profit on sale of associate (852) - -
Headline earnings 46,575 17,731 12,010
Continued operations 46,575 17,731 9,200
Discontinued operations - - 2,810
Weighted average number of shares 268,269,657 211,774,776 212,078,657
Headline earnings per share (cents) 17.36 8.37 5.66
Continued operations 17.36 8.37 4.34
Discontinued operations - - 1.33
Reconciliation of reportable segments profit or loss
Unaudited to Unaudited to Audited to
28 February 2018 28 February 2017 31 August 2018
6 months 6 months 12 months
R'000 R'000 R'000
Total operating profit for reportable segments 44,689 28,801 46,753
Adjusted for:
Profit/(loss) from equity accounted investments - - (679)
Investment revenue 38,220 1,517 2,400
Finance cost (1,324) (707) (8,804)
Profit before taxation 81,585 29,611 39,670
Taxation (15,646) (6,485) (12,822)
Profit for the period and total comprehensive income from continuing operations 65,939 23,125 26,848
Profit from discontinued operations - - 2,810
Profit for the period and total comprehensive income 65,939 23,125 29,658
Group performance
The Group delivered excellent organic revenue and profit growth as a result of the strong contributions from all its underlying operations and
investments for the interim period under review. Group revenue increased by 49% from R234m to R349m, compared to the prior interim period with all
the divisions benefiting from the Group's synergies, empowerment credentials and excellent management expertise, gaining significant clients in
the financial services sector. The Group's revenue and profit increased despite disposing of its investment in Saratoga Software (Pty) Ltd which
contributed R26.6m revenue and R4.8m profit for interim period last year.
Group operating profit increased by 55% from R29m to R45m compared to the prior interim period stemming from the organic growth in revenue.
Profit before tax for the period increased by 173% from R30m to R82m, stemming from the organic revenue growth and interest income from the capital
raised being accounted for after operating profit.
Cash generated from operations has decreased due to an increase in working capital requirements to fund the growth within all the divisions in the
Group in order to service projects and potential contracts.
Headline earnings per share ("HEPS") increased by 107% from 8.37 cents to 17.36 cents and earnings per share ("EPS") increased by 111% from 8.37
cents to 17.68 cents for the six months under review.
The Group's asset base increased by 2 301% from R188m to R4 513m, which includes the capital raised from the Listing.
Net asset value ("NAV") increased by 23 717% from R18m to R4 356m due to capital from the Listing and the strong asset growth of the
underlying investments. The NAV per share increased by 14 565% from 8.57 cents to 1 257 cents.
As AYO embarks on the execution of its strategy, head office costs increased to cater for the expected growth in the foreseeable future. The costs
incurred at the interim period include executive payroll costs, Listing costs and an IFRS 2 adjustment for the shares issued to a B-BBEE Consortium
prior to Listing.
Software, Consulting and Support
The software, consulting and support division, focused mostly on digital consulting engagements and transformation projects, had revenue decrease by
18.61%, from R106m to R87m, as a result of the sale of Saratoga Software (Pty) Ltd which contributed R26.5m revenue and R4.8m profit for the prior
period interim, resulting in operating profits decreasing by 11% from R16m to R14m.
Security Solutions
The security division is focused on offering security solutions to enterprise, focused mainly on Identity and Access Governance Management.
Revenues increased by 150% from R89m to R223m and operating profit increased by 695% from R4.9m to R39m. The increase is as a result of the
division's improvement in ownership and empowerment credentials allowing the division to service a larger pool of clients. This is already bearing
fruit in the financial services sector, where significant clients have been secured.
Unified Communications
The unified communications division is a reseller of globally recognised brands. Revenue increased by 58% from R38m to R40m as a result of better
alignment and leverage with its principle supplier and customer requirements. Operating profit decreased by 8.5% from R4.7m to R4.3m as a result
of investment costs into the establishment of a Mauritian subsidiary which will be used to service the rest of Africa in future.
Significant events
IFRS 2 B-BBEE share based payment:
AYO issued 31 960 000 shares at an issue price of R1.50 per share to a B-BBEE Consortium prior to Listing. At the date of issuance, the fair value
of the AYO shares exceeded the issue price of R1.50. In accordance with reporting requirements, the discount offered resulted in an IFRS 2
adjustment of R11.8m, which is recognised in the Statement of Comprehensive Income with the contra recognized directly in equity.
Listing on the JSE:
AYO listed on the JSE on 21 December 2017, resulting in the issued share capital increasing by R4 343m.
Listing costs amounted to R83.9m of which R78m related to fees for the placement of shares. These costs have been assumed to be directly
attributable to the Private Placement and is in line with market expectations.
These expenses have been offset against share capital in equity in accordance with IAS 32 - Financial Instruments: Presentation.
The remaining R5.9m is an estimate of advisory and professional fees. It has been assumed that these are not directly attributable to the Private
Placement expenses and have been included in operating expenses.
Events after reporting period
AYO has entered into an agreement to provide products and services to a multinational client, positioning the Group to challenge other incumbents
in various industries. Refer to cautionary announcement dated 18 April 2018. Details of this agreement are expected to be announced over the coming days.
Basis of preparation
The condensed consolidated financial statements are prepared in accordance with the JSE Listings Requirements and the requirements of the Companies
Act of South Africa, 2008 as amended. The JSE Listings Requirements require financial reports to be prepared in accordance with the framework
concepts, the measurement and recognition requirements of International Financial Reporting Standards ("IFRS"), the SAICA Financial Reporting Guides
as issued by the Accounting Practices Committee and Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council and
also that they, as a minimum, contain the information required by IAS 34 'Interim Financial Reporting'. The accounting policies applied in the
preparation of the summarised consolidated financial statements are in terms of IFRS and are consistent with the accounting policies applied in the
preparation of the previous audited consolidated annual financial statements.
The unaudited interim financial results were prepared by Chwayita Peter CA(SA), under the guidance of the chief financial officer, Naahied Gamieldien
and were not reviewed or audited by the Group's external auditors, BDO Cape Incorporated.
Use of judgments and estimates
In preparing these condensed interim financial statements, management has made judgments, estimates and assumptions that affect the application of
the accounting policies and the reported amounts of assets and liabilities, income and expenses. Due to the assumptions and judgments, actual results
may differ from these estimates.
The significant judgments made by management in applying the Group's accounting policies and the key sources of estimation uncertainty are consistent
with those applied to the audited consolidated financial statements for the year ended 31 August 2017.
Measurement of fair values
The Group has an established control framework with respect to the measurement of fair values. The fair valuation calculations are performed by the
Group's finance department and operational team on an annual basis which the Group's chief financial officer reviews.
The valuation reports are approved by the investment committee in accordance with the Group's reporting policies.
Prospects
AYO's acquisition strategy is on track to complement and augment the current businesses, the alliance with BTSA and enhance its vertical
industry "Go to Market" strategy.
The current target companies have been engaged in three key focus areas, being disruptive IT platform services, digital transformation and specific
industry vertical expertise. AYO's Digital Ecosystem will focus on these areas through, AYO Platforms, AYO Digital and AYO Industries. Divisionally,
we expect to be reporting under these focus areas in future.
AYO Platforms is focused on attracting disruptive platform businesses which will complement the comprehensive cloud services BTSA is already able
to offer AYO and will give customers the ability to source various, data, network, communications and security services through various consumption
models including on-premise, hybrid and cloud. AYO has embarked on due diligences with 3 target companies in this regard and will be well positioned
to disrupt this market.
AYO Digital is building distinct areas of expertise including Internet of Things (IOT) Platforms, Big Data Analytics, Artificial Intelligence (AI)
and Business Process Innovation and Transformation skills. AYO is in advanced discussions with 3 target companies who are recognized leaders in
this field.
AYO Industries is focused on attracting companies that have leading offerings and significant contracts in particular vertical industries. In the
short term, the company will be looking to add to its already comprehensive intellectual property in health and mining, oil and gas industries with
additional competencies in financial services, service provider and public sector verticals. AYO is in advanced due diligence with targets in
each of these industries.
On successful completion of certain acquisitions, AYO will be strongly positioned to win significant market share in its industry and to challenge
and disrupt the ICT landscape that has been dominated by the same brands.
Through the above strategies, AYO's product and service portfolio and Digital Ecosystem, it should be able to service a substantial customer base and
capture 5 - 8% of the South African market by 2022. Management remains confident that the forecasts in the PLS to 2019 remain achievable given new
contracts and the expected acquisitions that AYO will be announcing in due course. The exciting growth prospects that these target businesses will
enjoy within the AYO Digital Ecosystem will have a compounding effect on the company's organic growth through to 2019 and beyond.
The Group's auditors have not reviewed nor reported on any comments relating to this announcement.
Dividends
No dividends have been declared for the interim period ended 28 February 2018.
Appreciation
We wish to thank our employees, Group executives, management, our Board of directors as well as our strategic partners, stakeholders and business
partners for their loyalty and dedication in contributing to the success of the Group.
Mr Salim Young Mr Kevin Andrew Warwick Hardy
Independent non-executive chairman Chief executive officer
Cape Town
15 May 2018
Directors
S Young (chairman)*#; K AW Hardy (chief executive officer); N Gamieldien (chief financial officer), S Nodwele (chief investment officer);
W G Madzonga*#; K Abdulla*; C F Hendricks*; A B Amod*#; T M Ntsasa*#; M F Khoza*#; Advocate N A Ramatlhodi (appointed on 7 March 2018)*#
* non-executive
# independent
Company secretary: Nobulungisa Mbaliseli
Registered address: Quay 7, East Pier, V&A Waterfront, Cape Town, 8001
Email: nobulungisa@ayotsl.com
Transfer secretaries
Link Market Services South Africa Proprietary Limited
13th Floor, 19 Ameshoff Street, Braamfontein, 2001
Auditors
BDO Cape Incorporated
6th Floor, 123 Hertzog Boulevard, Cape Town, 8001
(PO Box 2275, Cape Town, 8000)
Sponsor
PSG Capital Proprietary Limited
1st Floor, Ou Kollege Building, 35 Kerk Street, Stellenbosch, 7600
Date: 15/05/2018 05:45:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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