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AEEI does an about-turn on its treatment of Ayo

Glowing interim results, but …
Former Ayo CEO Kevin Hardy testifying at the PIC Commission of Inquiry in April. Image: Moneyweb

African Equity Empowerment Investments (AEEI) announced in April 2019 that it would delay the release of its unaudited interim results for the period to February 28, 2019, citing “unexpected developments within the AEEI group”. Sekunjalo Investment Holdings is the parent company of African Equity Empowerment Investments.

The announcement came shortly after the JSE issued a directive to AEEI subsidiary Ayo Technology Solutions that an opinion must be obtained from its external auditors on the numbers reflected in its February 2018 and February 2019 interim results.

Interim results are not generally audited. However, former Ayo CEO Kevin Hardy, testifying at the PIC Commission of Inquiry, alleged that Ayo’s February 2018 figures had been amended on the instruction of Sekunjalo founder Iqbal Survé. This put a question mark over the reliability of the information in Ayo’s interim results.

Read: What does Ayo have to hide?

AEEI’s February 2019 unaudited interim results were finally published on May 9, 2019, and indicated a strong performance, which AEEI attributed to organic growth. AEEI posted a 31% (R188 million) increase in revenue to R792 million, and a 238% increase in earnings per share from 28.32 cents to 95.77 cents. Net cash from operating activities amounted to R123 million, and  net asset value increased by 8% from R4 910 million to R5 319 million. The group declared an interim dividend of 11 cents a share, totalling R54 million.

However, was there any impact on the AEEI interim results arising from the recent developments regarding Ayo?

Error in judgment

AEEI – which held 49.36% in Ayo at the end of February 2018 and at the end of the financial year to August 31, 2018 – had regarded, and treated Ayo, as an associate. This means the value of the investment in Ayo was disclosed in the balance sheet under investments in associates.

The value of the investment in Ayo was reflected as R6.96 billion at the end of February 2018 and as R4.8 billion in the audited financial statements as at August 31, 2018.

AEEI has now done an about-turn on its treatment of Ayo, and has announced that it had made an error of judgment in treating Ayo as an associate, and that it had actually lost control of Ayo on August 24, 2018, and not on February 24, 2018, as it had previously believed. This error of judgment has been classified as a “prior period error, requiring a retrospective restatement of the interim financial statements” as at the end of February 2018.

This means that the treatment of Ayo as an associate in the audited financial statements as at the end of August 2018 will stand.

As a result of this “error in judgment”, all figures for the six months to the end of February 2018 have had to be restated.

The most material impact is the restatement of investments in associates, as shown below.

Six months to February 28, 2018 (Rm)

As previously stated

Restatement of Ayo as subsidiary


Investment in associate

7 774

-6 964


Following on from the loss of control of Ayo on August 24, 2018, and the treatment of Ayo as an associate in the 2018 annual report, the group regained control of Ayo as defined by International Financial Reporting Standards 10 on December 21, 2018. Hence, Ayo has been consolidated from then on.

These interim results are unaudited, and we will have to wait for the 2019 audited annual report to see how the external auditors will treat this “error of judgment”, and the instances of loss of control and the regaining of control of Ayo. Will the external auditors acquiesce?

It is not clear at what point in time AEEI realised it had made an error in judgment. Could this have been spurred on by the focus on the value of Ayo?

More importantly, now that Ayo is a subsidiary, AEEI will not have to disclose the value of its investment. It will also not have to write down its investment to the market value as at the end of February 2019.

Ayo’s share price is currently sitting at R10.99.

Growth in assets

As a result of acquisitions, certain assets have grown by leaps and bounds, most noticeably the following:

Six months to the end of February (Rm)




Goodwill and intellectual property

2 262




5 443

5 205


Cash and cash equivalents

3 923

4 711


The restatement of Ayo as a subsidiary added R4.2 billion to cash and cash equivalents.


AEEI may be growing its asset base through acquisitions, but there is no indication of an increase in profitability.

As at the end of February




R million

Six months

Six months

Six months





Cost of sales




Gross profit




Other operating expenses




Operating profit




Net assets

8 542

6 397

1 448

Asset turnover ratio*




* Net assets/revenue – provides an indication of the efficiency of the assets in producing revenue; the higher the number, the less efficient.


An effective 80% shareholding in Saab Grintek Technologies (now known as SGT Solutions) was acquired on February 9, 2019, for R100 million (cash of R60 million and a contingent consideration of R40 million).

AEEI also acquired 76% of the ordinary share capital in Global Command & Control Technologies on December 13, 2018 (with effect from March 1, 2019) for a cash consideration of R23 million.

Does AEEI’s share price reflect its vision?

AEEI’s share price – which had been sitting at R4 on August 31, 2018 – has been steadily decreasing. During the interim period, the company bought back 317 000 shares (6.4% of the shares in issue) at an average price of R2.95 per share, for a total cash consideration of R936 887. On May 10, 2019, the share price closed at R2.85.


The AEEI group states that it “continues to build on its solid platform for further organic growth and has positioned itself well to further increase its investments by acquisition”.

AEEI is cash-flush, for now. However, if it continues on its acquisitive path without increasing its profitability, its value will be eroded. How long can AEEI continue without being profitable?



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