OPPORTUNITY:

To expand our market reach and customer/product mix to assist our clients in navigating unstable economic conditions.

CONTEXT:

2020 has certainly demonstrated just how delicate global economic stability is. The COVID-19 pandemic has had far-reaching consequences for businesses, large and small, across the entire world. Volatile macroeconomic conditions can have drastic impact on enterprise and government expenditure, reducing revenues for the Group and impacting negatively on operating costs, investments’ performance and projects rollout plans.

MITIGATION:

AYO’s acquisition strategy is firmly focused on investment in new technologies which are deeply integrated in modern life, business and economics. Such technologies have proven to be, to a degree, sheltered from the severity of economic downturn impact and in fact, during the reporting period have shown resilience and even growth. We continuously strive to further the diversity of our products and services as well as customer industries and groups in order to both be able to offer an enhanced all-inclusive service to our clients and minimise our exposure to industry-specific downturns. This strategy delivered positive results in the reporting period, as the increased demand for our cyber security and unified communications products, more than offset the delays in contract finalisations of our other divisions which were adversely impacted by the pandemic.

OPPORTUNITY: 

To enhance our integration into major clients’ operations by offering all-inclusive solutions through symbiotic collaborations amongst Group companies.

CONTEXT:

With several large contracts and organisational clients serviced by the Group’s various divisions, a loss of any significant deal or customer may negatively impact the Group’s overall performance. Whether such losses result from external factors beyond our control (such as macro-economic downturn or competitive outbidding) or Group-specific circumstances like reputational impairment, it is important that the impact on operations, capacity and expenditure is proactively managed.

MITIGATION: 

Best practices within the Group, particularly from our healthcare and cyber security divisions, have demonstrated that exposure to potential client loss can be adequately minimised by integrating our offering into the clients’ core business operations or processes. Coupled with continuous upgrades to our services, to incorporate latest technological innovations and cost-effective solutions, this integration strengthens our client relationships and makes AYO an indispensable link in their supply chain. We aim to replicate these solid customer bonds across all our operating entities business models. Collaborations among Group companies enables AYO to maximise existing client relationships, diversify our offering to important organisational clients, further our integration into their operations and increase revenue per customer. The management team actively engages with all operating entities within the Group to identify and enable such co-operation endeavours.

OPPORTUNITY: 

To demonstrate that AYO’s subscribes to the highest standards of governance practices as expected from an exampler South African corporate citizen.

CONTEXT: 

Historically, AYO’s governance and reporting have been perceived as weak by regulators as an indirect result of negative media sentiments. This has led to unprecedented challenges and audits of our past financial results and severe, even disproportionate, sanctions for erroneous statements. AYO acknowledges that stringent regulatory requirements benefit and protect both companies and shareholders and strives to keep abreast of and comply with changing regulatory context to both augment the brand’s image and avoid significant financial and reputational repercussions. 

MITIGATION: 

A core focus point for the Group during the reporting period has been the strengthening of our internal audit function, which champions the Group’s governance compliance, evaluates our governance and reporting practices and provides combined assurance. The unit works closely with our corporate sponsors to ensure awareness and understanding of the latest regulatory developments, advises management and the financial reporting team on requirements and best practices and reports directly to the chair of the audit and risk committee. During the financial year, the unit has completed a full compliance review with JSE listing requirements and King IV™ Governance Code. It is envisioned that in the next reporting period the unit will provide regular training workshops to management and directors of all Group entities to ensure adequate understanding of regulations and requirements at all levels of the organisation, and will also develop a close working relationship with the external audit partners for further efficiencies. Additionally, priority attention has been placed on the Group’s governance reporting during the reporting period with the first separate AYO King IV™ Implementation Report being published this year, aiming to clearly demonstrate the Group’s commitment to adhering to the King IV™ principles to all stakeholders.

OPPORTUNITY: 

To proactively engage with media and all stakeholders to ensure that information in the public domain regarding the Company is accurate and promote a positive corporate citizen image for AYO.

CONTEXT: 

Incorrect statements, allegations and negative media attention, whether founded or not, lead to reputational harm and have long-lasting effects on a business’ operations, performance and stakeholder engagement. Since the completion of the PIC inquiry in December 2019, which cleared AYO of any wrongdoing, the media hype around the story has subsided. Yet, the brand continues to be subjected to unfavourable media portrayals and erroneous statements have been publicised on various occasions, eroding the goodwill generated by the Company’s value-creating initiatives. 

MITIGATION: 

The Group has developed and implemented a comprehensive marketing and communication plan during the reporting period, which includes both proactive brand-building activities as well as swift decisive responses to hostile media narratives.

We acknowledge that re-building brand trust is a long-haul process and will require concerted efforts in the long-term. Our approach is to engage with all stakeholders, media and industry peers and demonstrate rather than describe, honest and transparent corporate citizenship behaviour as well as the positive impact of our initiatives on the broader society and the advancement of the UN SDGs. We actively lead and participate in events and programmes that promote education, entrepreneurship and economic advancement of disadvantaged and marginalised societal groups. We continuously report on our engagements in upliftment projects in the media. In industryled events we share our views on technologydriven opportunities for the advancement of South African economy aiming to inspire and motivate entrepreneurs and business counterparts, while building a reputation of a positive, knowledgeable, leading brand.

OPPORTUNITY: 

To create a balanced investment portfolio of complementary businesses which provides both stability and growth to our shareholders.

CONTEXT:

Operating entities within the Group are well-established, mature leaders within their respective fields, which negatively affects organic growth opportunities. Thus, acquisition of new investments, particularly ones in success or take-off business lifecycle stages, needs to be aggressively pursued to mitigate the impact of our mature portfolio on our growth performance. Further, the evershorter lifespan of technological innovation poses business risks for the Group and necessitates innovative expansion of current product and service offerings. 

MITIGATION: 

In order to maintain balance in AYO’s portfolio and deliver asset growth, the Board and executive team spend a considerable amount of time identifying and understanding the technologies that are expected to cause, and the industries that will experience, the strongest disruption in the next decade. In this respect, Prof Fourie, with his strong technological academic background, has been a welcome addition to the Board and the investment committee. This deep understanding of the future technological environment informs the Group’s investment mandate and enables us to better identify promising acquisition targets to mitigate financial risks and ensure achievement of ambitious growth targets. Given AYO’s partnership mentality, such progressive, less mature, acquisitions can collaborate with existing operating units to modernise the services currently on offer, while gaining access to new clients and/or markets for their own product portfolio.

 Additionally, the Group is evaluating potential opportunities for market diversification into less developed African markets for our mature subsidiaries, where they can still achieve significant growth. Pursuing such opportunities at Group level will reduce the operational challenges of entering new territories and contribute to economies of scale.

OPPORTUNITY: 

To maximise investment value in the short- and medium-term and reduce the impact of lower interest rates on the Group.

CONTEXT: 

The Group has a significant cash holding balance of R3.2 billion from which interest income is earned. Macro-economic conditions in the second half of the reporting period have led to a substantial decrease in the prime interest rate of 300 basis points, which resulted in an interest income decrease of 25% for the Group from R323 million to R242 million. These volatile conditions are likely to continue in the short- to medium-term, which puts pressure on our financial performance. 

MITIGATION: 

While interest rates are set by the South African Reserve Bank and completely out of our control, the impact of the reduced lending rate (currently at its lowest level since 1988) on the Group’s financial performance is material. We acknowledge that it is imperative for the Group to maintain sufficient cash reserves at hand to meet its operating and scaling needs. Yet, maintaining a large proportion of our assets in cash deposits at this point is ill-advised. Additionally, the unfavourable country financial rating has weakened investor interest in local businesses, creating opportunities for AYO to acquire suitable targets at advantageous valuations and terms. The Board, with the support of the investment committee, is therefore evaluating investment opportunities for the Group both in the form of acquisition targets and financial investments to minimise the negative impact of the current low interest rates on AYO’s financial performance.

OPPORTUNITY: 

To proactively engage with legal counterparts to seek constructive solution to perceived injustices for a mutually beneficial outcome. 

CONTEXT: 

On 31 May 2019, AYO received a summons issued by the Public Investment Corporation (“PIC”) and the Government Employee Pension Fund (“GEPF”). Additionally, a defamation claim by Magda Wierzycka against AYO and seven others is pending in the Western Cape High Court. AYO has instructed the Group’s attorneys to oppose both claims. While it is unlikely for any of the two matters to be heard before the courts in the next financial year, such unplanned legal shenanigans impact on our resources and our ability to deliver on our strategy. 

MITIGATION: 

Despite the release of the long-awaited report from the PIC Commission of Inquiry in late December 2019, which found no misconduct on AYO’s behalf in the share subscription transaction in question, the PIC did not withdraw the legal action that they have embarked on earlier in the year. The end of the reporting period saw the appointment of Abel Sithole as the new CEO of the PIC. Since the public announcement of the appointment, AYO has attempted to proactively engage with the new leader and we are hopeful that both organisations will grasp the opportunity for constructive dialogue and find a way to work together for the benefit of both our stakeholders. The defamation claim, on the other hand, while much less significant in its potential financial impact, has demonstrated to our team the need for a robust business continuity plan, as even such frivolous matters, can impact on our internal resources at crucial business times and detract us from important opportunities. The claim has given AYO the opportunity to hone its legal response and stakeholder engagement to protect the business from any negative publicity that could arise from this and similar situations in the future.

OPPORTUNITY: 

A strong focus on implementing our target acquisition strategy remains the corner stone of continual positive performance and growth.

CONTEXT: 

Identifying, acquiring and scaling target business units with strong growth potential is the basis of AYO’s business model. External diversions such as media attacks or frivolous legal claims, amongst others, strain our internal resources and may result in missed growth opportunities or delayed strategy implementation for the Group. This could negatively impact our financial performance and delivery on set growth targets.

MITIGATION: 

AYO prides itself on running lean efficient operations with a small, very capable team delivering strong performance through challenging times year after year. The pressure the Group was under at the beginning of the reporting period, however, being subjected to three simultaneous audits, while also responding to the above-mentioned legal matters and negative media narratives has taken a toll on our human resources, leading to exhaustion and diminished focus. Additions were made to the team at both Board and operational level to ensure that the Company has sufficient capacity to realise market opportunities and deliver on its strategic imperatives. Khalid Abdulla joined the Board and the executive team to assist in the implementation of our target acquisition strategy, contributing valuable deal-making experience. On operational level a Group executive management team was established to work closely with the Executive Committee and ensure seamless implementation of strategic directives. The Group executive team also works closely with the subsidiary companies to identify potential symbiotic relationships and realise common projects.

OPPORTUNITY:

Protecting the security of sensitive data and users can prevent critical business interruptions.

CONTEXT: 

Cyber-attacks and data breaches, be they malicious or accidental, could compromise confidential information and result in business interruptions, reputation impairment or even loss of revenue. The national COVID-19 lockdown forced the implementation of remote working protocols without sufficient time to establishing relevant data protection practices, while cyber threats have risen tremendously on a global level.

MITIGATION: 

Data protection has long been a priority at AYO with relatively high levels of awareness and compliance amongst employees, particularly as one of the most significant subsidiaries of the Group, Puleng Technologies, is a specialist cyber-security unit. However, we acknowledge that cyberattacks continuously evolve in their complexity and magnitude, which requires us to be vigilant at all times. During the reporting period the internal audit team undertook an in-depth assessment of the IT security protocols and practices across all Group units, evaluating their appropriateness and effectiveness. The Board has approved the appointment of a full-time specialist IT auditor who will join the internal audit function in the coming financial year and will monitor and augment the Group’s cyber security software and processes on ongoing basis.

OPPORTUNITY: 

To position AYO as an “employer of choice” in the South African talent market space.

CONTEXT: 

Highly specialised technical skills are in short supply globally and the South African ICT industry is one of the worst affected, with top industry talent being lured by lucrative opportunities in more developed economies. Additionally, the fast pace of technological advancement and innovation necessitates continual education and upskilling of specialist staff. Failing to attract, retain and invest in ongoing talent development could impact on our ability to innovate, service our customers effectively and remain competitive. 

MITIGATION: 

Talent attraction and retention has long been recognised as and remains a key priority for the AYO Group. We continue to enhance and refine our employee value proposition by focusing on not just fair remuneration, but an all-encompassing reward philosophy inclusive of career prospects and opportunities, culture and values, conducive working environment, compensation and benefits. AYO’s remuneration policy was again reviewed and adjusted during the reporting period in line with legislative requirements and industry best practices with additional short- and long-term incentives included for key staff roles. We continue to invest in the ongoing upskilling and development of our staff, as well as welcoming and training fresh young talent, through our learnership and internship programmes. We also look beyond our current business needs and invest heavily in education initiatives across the country, which enables us to both develop a strong future talent pool and advance an important UN SDG, namely SDG 4 – Quality Education.

While significant incentives have been put in place to motivate and retain key individuals in critical roles, we aim to further our efforts in this regard in the next financial year, with strong focus on succession planning and business continuity.