Ayo Technology dividends near R1 billion as ‘PIC cash pile’ dwindles

Ayo Technology has declared an interim dividend of 35c per share despite the group reporting a headline loss of R122 million (35.9c per share) on revenue of R859 million in the six months to 28 February 2022.

The interim dividend totals R120.4 million but is more modest than the R223.7 million (65c per share) dividend declared at the half-year mark in 2021.

In total, Ayo declared dividends totalling R326.9 million in the last fiscal.

Since listing in 2018 and with this interim declaration (to be paid on June 14), Ayo will have paid out a total of R950 million in dividends.

It defended the large dividend declared in 2021 (65c interim and 30c final), telling Moneyweb that “Ayo has an established track record of paying dividends and decided to maintain its dividend despite a challenging trading environment”.

It continued: “While committed to its listing vision, the group retains a significant cash balance and returned some of this cash to shareholders. The board declared a dividend with the realisation that its shareholder base were largely pensioners who had not received much dividend income during the pandemic.”

Ownership and controversy

Its 2021 annual report discloses that Ayo has 1,133 individual shareholders who hold 12 million shares, or just 3.5% of the group.

In 2017, the Public Investment Corporation (PIC) controversially invested R4.3 billion for a 29% stake in the technology solutions firm linked to Iqbal Survé.

Survé’s family holding company, Sekunjalo Investment Holdings, has a majority stake in JSE-listed African Equity Empowerment Investments (AEEI) which in turn holds 49.36% of Ayo.

This means Sekunjalo has indirect control over Ayo.

The PIC and the Government Employees Pension Fund (GEPF) issued a summons to Ayo in May 2019 which sought a declaration that the subscription agreement entered into by the PIC with Ayo be declared unlawful and set aside.

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The summons also requested that “Ayo be ordered to pay the PIC R4,290,654,165, together with interest of 10.25% per annum accrued from 22 December 2017 to the date of final payment”.

Ayo instructed its attorneys to oppose the action and says “the matter is currently in discovery”.

In its financials, Ayo says that: “In the event that the PIC and GEPF are successful in their court application, management believes that they will be able to reconfigure the company into a pure investment holding company. Ayo has several subsidiaries that have been in existence for more than 20 years, delivering both satisfactory trading performance and dividend income for Ayo.”

Last year, Ayo received R1.848 million in dividends from its subsidiaries. In the six months to 28 February 2022, it received dividend income of R3.129 million from these units.

Objections

Ayo further noted in its 2021 annual report that: “The consistent association and discredit of our brand with investigations of impropriety at the PIC during the Mpati Commission of Inquiry continues to erode the value we work hard to create for our stakeholders.”

Ayo has previously objected to the description of its cash balances as the “PIC’s money”. But without the investment of R4.3 billion by the manager of government pensions, it is unlikely the Ayo would have billions in cash on hand.

Last year, the group earned R164 million in interest. Of this, R96 million was from its cash balances, without which its R200.5 million loss before tax would’ve been 50% higher.

In the most recent six months it received interest income on its cash of R36.7 million. Ayo highlights that there “was a significant decrease in the prime overdraft rate, which resulted in a significant decrease in the interest rate that the group obtained for its cash holding”.

Its loss before tax was R85 million.

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It says in prior years “the group earned an average of 3.5% per annum from its cash holdings”.

“To obtain a higher return on cash holdings, the group invested in the stock market. The group earned dividend income of R3 million and had fair value gains of R19 million from its investments in the stock market during the current period under review.”

Its financials show a total of R207.9 million invested with Vunani Securities. Ayo adds that “the decrease in overall interest and investment income is mainly because of a decline in overall cash balances”.

Cash burn

The results for the half-year to end-February show bank balances of R1.513 billion.

In the six months, it burnt through R650.2 million in cash (from a balance of R2.16 billion at the start of September).

In the last full financial year (2021), it burnt through R1.06 billion in cash.

The PIC indicated in December that Ayo’s dividend payments would be “subject to legal review”.

This article first appeared on Moneyweb and was republished with permission. Read the original article here.