Most of Ayo’s profits came from interest earned on PIC funds
More than half of Ayo Technology Solutions’ pre-tax profits in the six months to February came from interest earned on the funds the Public Investment Corporation (PIC) invested in the company.
In December 2017, the PIC controversially invested R4.3bn into Ayo, acquiring a 29% stake in the process. The deal is under scrutiny at the Mpati commission of inquiry into the PIC.
Ayo’s investment revenue from bank deposits leapt from R38.2m a year before to R150.2m in the six months to February, according to its interim results published on Monday. That equates to 56% of group profit before tax of R266.7m.
Simon Brown, founder of Just One Lap said most companies "book interest as revenue but typically it would be such a small amount that it would be insignificant in terms of their total revenue”
He said Ayo has other businesses, contracts and revenues but a significant portion is coming from the interest earned.
“The interest is still a significant part of their profitability.”
Some of the PIC’s investment was placed in Iqbal Survé’s 3 Laws Capital business, though Ayo withdrew those funds at the end of February, according to its results.
Ayo’s cash balance declined to R3.6bn at the end of February partly due to acquisitions, dividends, and higher working capital.
But the PIC has vowed to recover the R4.3bn it invested in Ayo under the watch of former CEO Dan Matjila, allegedly without following due processes.
Independent Media chair Survé, who owns a large portion of Ayo via Sekunjalo Group, told the Mpati commission on Wednesday morning it would be irrational for the state asset manager to withdraw its investment. This was because Ayo’s market capitalisation could balloon from R5.2bn currently to R20bn in five to seven years, he said.
The PIC’s investment in Ayo was “very legitimate”, Survé said, adding that he hoped the asset manager would discuss its concerns with Ayo so the parties could avoid litigation.
As Iqbal Survé testifies in front of the PIC bids for the AEEI shares are down to R1.28 and Ayo 52 cents!!! Market votes with its feet. At this stage it’s a stampede. Unicorns and all.— Magda Wierzycka (@Magda_Wierzycka) April 3, 2019
Brown explained the plan for Ayo was always to invest in other businesses and firm up their portfolio but the plan has been derailed somewhat. Ayo's failed attempt to acquire a 30% stake in British Telecoms SA for close to R1 billion was a major blow that left the technology firms with surplus cash reserves which are now earning interest. This further highlights the the disproportionate nature of Ayo’s business operations compared to the PIC’s R4.3bn investment, said Brown.
He said the company makes money but this is so low that even the interest earned on cash in the bank outweighs their normal operating profits.
“The risk to the investor is if they end up making a bad deal with the money. The upside is if they do a good deal. For now we just wait and see," said Brown.
Ayo said in its results that interim revenue nearly doubled to R675m, thanks partly to a contract with an unnamed multinational group.
“The primary drivers of revenue are organic growth and acquisitions,” said Ayo CEO Howard Plaatjes, who also said the company “is of the opinion there is no basis for the PIC to recoup its investment”.
Ayo’s shares closed at R15 on Tuesday, indicating a 65% decline on the PIC’s initial investment at R43 a share. The bid price for Ayo’s stock, which reflects the price at which investors are prepared to buy, was just R0.59 on Wednesday morning.