To view the PDF file, sign up for a MySharenet subscription.

AYO TECHNOLOGY SOLUTIONS LIMITED - Findings of Internal Management Review and Cautionary Announcement

Release Date: 04/06/2019 08:54
Code(s): AYO     PDF:  
 
Wrap Text
Findings of Internal Management Review and Cautionary Announcement

AYO 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”)

FINDINGS OF INTERNAL MANAGEMENT REVIEW PURSUANT TO
AGREED UPON PROCEDURES PERFORMED BY BDO AND CAUTIONARY ANNOUNCEMENT


Further to the “AYO to fully comply with JSE” announcement dated 11 April
2019, the Company wishes to advise that the Company’s auditors, BDO Cape
Incorporated (“BDO”), have completed an engagement in terms of International
Standard on Related Services (“ISRS”) 4400: Engagements to Perform Agreed-
Upon Procedures Regarding Financial Information.

The Company’s new management and Board of Directors have reviewed the
findings of the report provided by BDO and have identified certain
corrections which arose as a result of incorrect application of judgement
and estimates (“Management Review”).

The purpose of this announcement is to therefore set out in detail the
findings from the Management Review, specifically the above identified
corrections and their impact on the financial statements of AYO for the six
months ended 28 February 2018 (“2018 Interim Financial Statements”).

Shareholders are advised that, per the request of JSE Limited, the Company
will further engage BDO to conduct an audit of the 28 February 2018 Interim
Results.

The net effect of the above corrections on profit attributable to
shareholders of AYO is that the previously reported profit increases from
R47 million to R48 million.

The impact on the 2018 Interim Financial Statements are set out below. The
adjustments identified have no impact on the audited results for the 12
months ended 31 August 2018.

This information has not been reviewed or reported on by AYO's auditors.

SUMMARY OF FINANCIAL PERFORMANCE
                                                  Adjusted
                                                  amounts as
                                                  per
                                   Previously     Management
                                   reported       Review       % change
                                   unaudited      28           28
                                   28 February    February     February
                                   2018           2018         2018

Basic and diluted earnings per
share (cents)                             17,68        17,97         2%
Headline and diluted headline
earnings per share (cents)                17,36        17,65         2%
Net asset value per share
(cents)                                1 257,35     1 257,57
Net tangible asset value per
share (cents)                          1 240,99     1 241,21
Profit before taxation (R’000)           81 585       81 675
Profit attributable to
shareholders of AYO (R’000)              47 431       48 207         2%
Weighted average number of                           268 269
shares in issue                     268 269 657          657
                                                     346 511
Number of shares in issue           346 511 621          621


CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

                                                     Adjusted
                                                   amounts as
                                        Previously        per
                                          reported Management     Revised
                                         Unaudited  Review at   Unaudited
                                             at 28         28       at 28
                                          February   February    February
                                 Notes        2018       2018        2018


Revenue                                    348,672          -     348,672
Cost of sales                    1       (223,859)    (6,712)   (230,571)

Gross profit                              124,813     (6,712)     118,101
Other income                                3,452           -       3,452
Other operating expenses         2       (70,613)    (12,128)    (82,741)
Warranty expense                 3              -       (540)       (540)
Listing cost expense             4        (1,154)     (5,677)     (6,831)
Equity-settled share-based
payment expense                          (11,809)           -    (11,809)

Operating profit                           44,689    (25,057)      19,632
Investment revenue               5         38,220      25,148      63,367
Finance costs                             (1,324)           -     (1,324)

Profit before taxation                     81,585          91      81,675
Taxation                         6       (15,646)     (7,865)    (23,511)

Profit after taxation                      65,939     (7,775)      58,164

Other comprehensive income
Items that maybe reclassified
subsequently to profit or
loss:
Exchange differences on
foreign operations                            (5)           -         (5)
Total comprehensive income for
the year                                   65,934     (7,775)      58,159

Profit after taxation
attributable to:
Shareholders of AYO              7         47,436         771      48,207
Non-controlling interests        7         18,503     (8,545)       9,958
Total profit after taxation                65,939     (7,775)      58,164

Total comprehensive income
attributable to:
Shareholders of AYO                        47,431         771      48,201
Non-controlling interests                  18,503     (8,545)       9,958
Total comprehensive income
                                           65,934     (7,775)      58,159

Basic and diluted earnings per
share (cents)                               17.68        0.29       17.97


CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
                                                            Adjusted
                                                          amounts as
                                             Previously          per
                                               reported   Management       Revised
                                              Unaudited    Review at     Unaudited
                                                  at 28           28         at 28
                                               February     February      February
                                  Notes            2018         2018          2018

Assets
Non-Current Assets                               70,346      (1,190)        69,156
Property, plant and equipment                     6,729            -         6,729
Goodwill                                         43,411            -        43,411
Intangible assets                                13,276            -        13,276
Investments in joint ventures                        33            -            33
Loans to group companies                          4,780            -         4,780
Other financial assets                              747            -           747
Operating lease asset                                12            -            12
Deferred tax                      6               1,358      (1,190)           168
Current Assets                                4,512,711          631     4,513,342
Inventories                       8              37,546     (14,516)        23,030
Trade and other receivables       9             160,756       15,147       175,903
Other financial assets                           71,449            -        71,449
Current tax receivable                              680            -           680
Cash and cash equivalents                     4,242,280            -     4,242,280
Total Assets                                  4,583,057         -559     4,582,498

Equity and Liabilities
Equity
Stated capital                                4,449,409            -     4,449,409
Reserves                                         11,805            -        11,805
Retained income                   7           (104,351)          771     (103,580)
Attributable to shareholders of
                                              4,356,863          771     4,357,634
AYO
Non-controlling interest          7              40,658      (8,545)        32,112
Total equity                                  4,397,521      (7,775)     4,389,746

Liabilities

Non-Current Liabilities                          31,738            -        31,738
Loans from group companies                       29,748            -        29,748
Other financial liabilities                          38            -            38
Finance lease liabilities                         1,952            -         1,952
Current Liabilities                             153,795        7,216       161,014
Trade and other payables                        128,710                    128,710
Loans from shareholders                              69                         69
Other financial liabilities                       8,268                      8,268
Operating lease liability                           356                        356
Deferred income                                   1,213                      1,213
Current tax payable               6               3,827        6,675        10,502
Provisions                        10              8,166          541         8,707
Bank overdraft                                    3,189                      3,189

Total Liabilities                               185,536        7,216       192,752
Total Equity and Liabilities                  4,513,057         -559     4,582,498
Net asset value per share
                                               1,257.35                   1,257.57
(cents)
Net tangible asset value per
                                               1,240.99                   1,241.21
share (cents)
Number of shares in issue                   346,511,621                346,511,621

CONDENSED STATEMENT OF CHANGES IN EQUITY
For the six months ended 28 February 2018

                                                          Adjusted
                                                        amounts as
                                        Previously             per
                                          reported      Management
                                         unaudited          Review    % change
                                                28              28          28
                                          February        February    February
                                              2018            2018        2018

Balance at the beginning of the
period                                         67,091            -      67,091
Total comprehensive income
attributable to shareholders of AYO            47,431          771      48,202
Total comprehensive income
attributable to non-controlling
interest                                       18,503      (8,536)       9,967
Issue of shares                             4,260,280            -   4,260,280
Equity-settled share-based payment             11,809            -      11,809
Dividends to non-controlling
interest                                     (12,593)            -    (12,593)

Balance at the end of the period            4,392,521      (7,765)   4,384,756


SUMMARISED CONSOLIDATED STATEMENT OF CASH FLOWS
                                                        Adjusted
                                                      amounts as
                                                             per
                                       Previously     Management
                                         reported         Review    % change
                                        unaudited             28          28
                                      28 February       February    February
                                             2018           2018        2018


Cash generated from operations            (6,100)              -     (6,100)

Finance income                             38,220              -      38,220

Finance costs                             (1,324)              -     (1,324)

Tax paid                                 (12,152)              -    (12,152)
Net cash from operating
activities                                 18,644              -      18,644

Cash flows from investing
activities
Net additions to property,
plant and equipment                       (1,119)              -     (1,119)
Net additions to intangible
assets                                    (1,148)              -     (1,148)
Net repayment of loans from
group companies                          (51,084)         51,084           -
Net outflow from purchases and
disposals of financial assets            (51,274)              -    (51,274)
Net cash to investing
activities                              (104,625)         51,084    (53,541)

Cash flows from financing
activities

Net proceeds on share issue             4,265,280        (5,000)   4,260,280
Net proceeds from other
financial liabilities and
finance leases                              1,208              -       1,208
Net proceeds from loans from
shareholder                                  (79)          5,136       5,057
Net repayment of loans from
group companies                                   -     (51,084)    (51,084)

Dividends paid                           (12,457)          (136)    (12,593)
Net cash from financing
activities                              4,253,952       (51,084)   4,202,868

Total cash movement for the
year                                    4,167,971              -   4,167,971
Cash at the beginning of the
period                                     71,120                     71,120
Total cash at the end of the
year                                    4,239,091              -   4,239,091

Headline earnings
Determination of headline earnings
                                                      Adjusted
                                                    amounts as
                                      Previously           per
                                        reported    Management
                                       unaudited        Review      % change
                                     28 February   28 February   28 February
                                            2018          2018          2018
Earnings attributable to
ordinary equity holders                   47,431           771        48,202
Adjusted for:
Profit on sale of property,
plant and equipment                          (4)                         (4)
Profit on sale of associate
                                           (852)                       (852)
Headline earnings                         46,580             -        47,346

Weighted average numbers of          268 269 657                 268 269 657
shares

Headline earnings per share
(cents)
- Basic                                    17,36             -         17,65
- Diluted                                  17,36             -         17,65


CONDENSED SEGMENTAL ANALYSIS

                         Segmental revenue                        Segmental profit
                               Adjusted                              Adjusted
                             amounts as                            amounts as
                                    per                                   per
                 Previously Management    Revised    Previously    Management  Revised
                   reported      Review unaudited      reported        Review unaudited
                         28          28         28           28            28         28
                   February    February   February     February      February  February
                       2018        2018       2018         2018          2018       2018
                      R'000       R'000      R'000        R'000         R'000      R'000
Software and
consulting           36,848           -     36,848        1,515            -      1,515

Security            223,156           -    223,156       39,192     (16,712)     22,480
Unified
communications       40,081           -     40,081        4,371                   4,371

Health care          49,717           -     49,717       12,428                  12,428
Managed
services             12,424           -     12,424     (12,818)      (8,344)   (21,162)

Total               362,226           -    362,226       44,688     (25,056)     19,632
Less inter-
segmental sales    (13,554)           -   (13,554)            -            -          -
Total revenue
and profit         348 ,672           -    348,672       44,688     (25,056)     19,632



 NOTES

1. Cost of sales
   The cost of sales expenses was understated by an amount of R6,7 million in the
   previously reported results for the six months ended 28 February 2018
   (“Previously Reported Results”). The Company processed an adjustment which was
   for accruals to the amount of R18 million. Subsequent investigations have
   revealed that the actual amount which should have been processed was R11,3
   million resulting in the understatement of cost of sales by R6,7 million.

2. Other operating expenses
   The operating expenses were understated by an amount of R12,1 million in the
   Previously Reported Results. The understatement of operating expenses by R12,1
   million is comprised of a reversal of commission expense of R10 million and a
   reversal of salary expenses of R2,1 million. The Company processed a reversal
   of R10 million to commission expense as there was a dispute on the commission
   structure by the board of directors. Subsequent to the inspection of the
   employment contracts, it was noted that the commission structure was embedded
   in the existing employment contracts therefore should be accounted for and not
   reversed. The Company processed a reversal of R2,1 million for salary expenses
   as these expenses related to a company which was disposed of and were not for
   the account for the Group. Subsequent investigations have revealed that an
   amount of R2,1 million should not have been reversed as the related income
   recovery was already accounted for.

3. Warranty expense
   The warranty expense relates to a contingent purchase consideration provision
   in relation to an acquisition of a subsidiary. There was a recalculation
   performed on the contingent purchase consideration provision for the Previously
   Reported Results as there was a change in assumptions related to the provision.
   A mathematical mistake occurred during the recalculation which resulted in an
   understatement of the warranty provision and expense by an amount of R0,5 million.

4. Listing cost expenses
   The Company capitalised listing costs of R5,7 million on the basis that these
   costs were incurred directly or indirectly in relation to the raising of capital
   in respect of the listing. During the year end audit, it was identified that
   the listing costs should be expensed and therefore the Previously Reported
   Results have been adjusted to account for the expense.

5. Investment revenue
   During the review of the Previously Reported Results it was identified that
   there was accrued interest income of R25,1 million which reflected in AYO’s bank
   statements for the month ended 31 March 2018.      The interest income was not
   reflected on AYO’s bank statements as at 28 February 2018 and the investment
   income was understated by an amount of R25,1 million as a result of accrued
   interest income not being taken into account in the Previously Reported Results.

6. Taxation
   The Company re-computed its income and deferred tax expenses as a result of the
   adjustments identified in notes number 1 to 5 above. The total income tax expense
   and liability was understated by an amount of R6,7 million as a result of tax
   on the accrued interest income of R25,1 million and the adjustments identified
   in notes number 1 to 4. The deferred tax expense was understated by an amount
   of R1,2 million and the deferred tax asset was overstated by an amount of R1,2
   million due to the tax effects of the adjustments identified in notes number 1
   to 5 above.

7. Retained income and non-controlling interest
   The net effect of the adjustments identified above is an increase in profit
   attributable to shareholders of AYO and retained income of R0,8 million. The
   adjustments identified in notes 1 and 2 were in relation to a subsidiary with
   non-controlling interests and the net effect of the adjustments is a decrease
   in non-controlling interest of R8,5 million.

8. Inventories
   The adjustment to cost of sales of R6,7 million, reversal of salary expenses of
   R2,1 million and capitalisation of listing costs of R5,2 million were processed
   to work in progress resulting in the overstatement of inventory by R14,5 million.

9. Trade and other receivables
   The adjustment for commission of R10 million and the accrual for interest of
   R25,1 million has been processed to trade and other receivables resulting in a
   net understatement of trade and other receivables of R15,1 million.

10.Provisions
   The adjustment to warranty expenses was processed to provisions resulting to
   the understatement of the provision liability by R0,5 million.

CAUTIONARY ANNOUNCEMENT

Shareholders are advised to exercise caution when dealing in the securities of the
Company until the audit of the 28 February 2018 interim financial results is
completed and published on SENS.

Cape Town
4 June 2019

Joint Sponsor
Vunani Corporate Finance

Joint Sponsor
Merchantec Capital

Date: 04/06/2019 08:54:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
 the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, 
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
 information disseminated through SENS.

Email this JSE Sens Item to a Friend.

Share This Story