Ayo Technology deeper in the red after full-year losses
Tenders for Sizwe IT help group revenue rise 28%, but loss before tax widens to R653m
Ayo Technology Solutions continued to lose money in the full year to end-August 2023 due to a host of issues, including decreased gross margins, tax adjustments and loan impairments.
The technology group’s revenue saw an increase of 28%, rising from R1.8bn to R2.3bn due to improved performance from the managed services and unified communications divisions.
The stock was down 9.89% by 3pm on Wednesday at 82c. The thinly traded share has lost 72.1% of its value so far in 2023.
The managed services division, Sizwe IT Group, contributed R1.2bn, up from R933m the prior year, thanks to an increase in awarded tenders.
This unit has been under the spotlight in recent months. In September, Ayo flagged allegations of financial irregularities at Sizwe, saying an internal audit revealed acts of irregularities in its books.
Business Day reported in June that Sizwe and the Eastern Cape education department were in negotiations to reach an out-of-court settlement over a controversial deal to supply matric pupils in the province with computer tablets.
The department and Sizwe in 2019 entered into a deal worth more than R500m to supply 55,000 tablets to matrics. The contract was a three-year lease agreement with a price tag of R538m, amounting to nearly R240 per student per month.
The deal was interdicted by the State Information Technology Agency (Sita), which is charged with procuring IT services for the government. Sita argued it was not involved in the procurement process.
In other parts of the business, the unified communication division, comprising Kathea and Kalula, also saw growth. Kathea’s revenue rose from R236m to R324m, while Kalula’s grew from R134m to R223m. This is attributed to companies adopting hybrid working environments and expanding into new territories.
The group’s gross profit percentage decreased from 22% to 16% due to lower margins in the managed services divisions and more procurement of equipment distribution contracts. To mitigate this, the group announced a restructuring of the corporate head office to reduce costs and implemented cost-saving initiatives.
Despite these measures, operating costs remained high due to the cost of restructuring and retrenchment, legal fees, and impairment of non-performing investments.
The group incurred other operating losses of R56m due to derecognition of derivatives, compared with gains of R59m in the prior year. Despite this, the stock portfolio earned dividend income of R7m and had fair value gains of R10m, up to R20m.
Additionally, the group generated interest income and investment income totalling R150m, mainly due to interest rate increases.
Overall, Ayo reported a wider loss before taxation of R653m, from a R233m loss in the previous year, mainly due to decreased gross margins, lower fair value adjustments on investments, VAT adjustment, derecognition of derivatives and the impairment of loans.
The group said it continues to face challenges such as a subdued economic environment after Covid-19, negative publicity, banking challenges and lack of access to funding.