A R6.5m fine & JSE’s damning indictment of Ayo Technologies

Following the highly public censures of Steinhoff and Tongaat, on Thursday the JSE fined Ayo Technologies R6.5-million for “errors and misstatements” in its financial reporting that were “quantitatively and qualitatively material”.

These comments refer specifically to the 2018 interim results and 2019 interim results, but according to the JSE, it is likely that since listing in 2017, Ayo’s financial statements have not been fairly presented.

This has material implications on the now-infamous deal that saw the PIC invest R4.3-billion in Ayo Technologies.

Indeed, the evidence presented to the Mpati Commission of inquiry into allegations of impropriety regarding the Public Investment Corporation heard that Ayo inflated its own valuation by up to 14 times, and the price the PIC paid was a mere “thumbsuck”.

https://www.dailymaverick.co.za/article/2019-07-25-dan-matjila-says-he-was-satisfied-ayo-technologys-r43-a-share-valuation-was-reasonable-experts-strongly-disagree/

For more on the PIC and Ayo deal read here, here and here.

https://www.dailymaverick.co.za/article/2019-08-13-dan-matjila-shifts-blame-to-pic-deals-team-for-controversial-ayo-investment/

In the case of the 2018 interims, the JSE noted that profit after tax decreased by 19%, and earnings per share decreased by 13% following restatements.

In addition, restatements to other operating gains and other operating expenses saw the 2019 interim headline earnings per share decreased by 50%.

https://www.dailymaverick.co.za/article/2019-07-16-custodian-of-government-worker-pension-money-was-blindsided-by-pics-r4-3bn-ayo-deal/

Of its own volition, Ayo published a change statement on 31 January 2020, highlighting to the market significant changes made to its previously published reviewed preliminary results for the year ended 31 August 2019. 

However, even this was not accurate. According to the JSE, Ayo omitted numerous disclosure notes when publishing its audited 2019 annual financial statement (AFS). As a result, the audit report on which the 2019 AFS was based was withdrawn, and the auditor, BDO, reissued its report. 

Ayo then published and distributed revised results to shareholders on 16 March 2020 as supplementary information. For a big listed company presumably staffed by legions of CAs, overseen by a competent CFO and a presumably competent audit committee, the JSE findings were damning.

According to the JSE, Ayo did not have robust financial reporting procedures and did not appear to have sufficient staff on its finance team. As a result, on the income statement intangible assets, inventories, receivables and payables had to be restated.

Incredibly, Ayo incorrectly included non-cash items in the statement of cash flows. As a result, restatements had to be made to the cash flows relating to operating, investing and financing activities.

The balance sheet also underwent significant changes with alterations made to goodwill, reserves and contingent consideration liabilities, among other items. 

While the JSE investigated just the 2018 and 2019 interim results, it went far beyond that remit, noting that Ayo’s financial team “did not possess sufficient historical and technical knowledge of the Company to produce financial information that would provide a fair presentation of Ayo’s results to the market since its listing on the JSE in 2017”.

In a statement, the company said it “acknowledges and respects the JSE’s findings that whilst no fraud was perpetrated, the results did not comply with IFRS, notwithstanding Ayo being of the opinion that the relevant IFRS rules can be interpreted differently”.

“Ayo also concurs that at that time, it failed to observe the highest standards of care in the dissemination of the interim financial information into the marketplace due to a new financial management team and complex acquisition transactions.”

The JSE noted that while this investigation is now closed, an investigation into the conduct of current and former directors that presided at the Company during the periods in question and who are bound by the Listings Requirements is ongoing. BM/DM