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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
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