Defining our priorities through materiality
MATERIAL MATTERS
Outside of the external economic and regulatory environment, a number of factors have the potential to impact our ability to create and preserve value in the short, medium and long term. These are our material matters.
Since the onset of the pandemic our material matters have amplified in both scope and significance. Thus, we continuously monitor our external environment and operating context and make swift business decisions to mitigate, or conversely, maximise the impact of such material issues on our ability to execute our strategy and create stakeholder value.
Volatility in South Africa
As our home base, South Africa contributes majority of our revenue. Thus, volatility in the country, on any level, can materially affect our performance. While the economic impact of the COVID pandemic has rippled all over the world, additional challenges in South Africa, including record-high unemployment levels, political and social unrest and electricity supply disruptions, affect national industries and impair the local market’s attractiveness.
We continue to monitor the country’s economic and political stability and assess the impact these factors have on our ability to operate and create and preserve value. Additionally, we consider the potential costs, risks and benefits of expanding services and operations to other SADC territories, in order to reduce our exposure to factors outside of our control and mitigate any value-eroding prospects for our shareholders.
COVID long term impact
After 18 months of living with the devastation caused by the global pandemic, the initial shock has worn out and the world has come to the realisation that this truly is our “new normal”. While we have all, more or less, adapted to remote working, virtual shopping and online learning, the deeper, psychological effects of prolonged isolation and financial uncertainty are only starting to come to the fore at this time. Intermittent outbreaks of COVID infections with new strands of varied strengths will continue to weaken social structures and disrupt economic activity until critical vaccination threshold level is achieved. Sadly, the rollout in South Africa is not going as fast as we hoped.
Thus, we continue to monitor infection rates; attempt to foresee their impact on our Group, customers and economy; develop contingency response plans and above all, support our employees in these difficult times.
Business endurance
Since the onset of the pandemic, more than 3,000 businesses in South Africa have been liquidated, as reported by Stats SA, across all industry sectors from restaurant groups to construction enterprises. Size and historical performance of the business have proven immaterial to its prospects of surviving the crisis, with cash flow resilience emerging as the critical success factor.
As a diversified Group incorporating more than 20 subsidiaries and investments, AYO’s overall performance is contingent on the business endurance of all of its operating divisions. Thus, monitoring and managing the liquidity health of our subsidiaries is material to our ability to create and preserve stakeholder value. Our capital allocation decisions are also highly influenced by the same considerations.
Customer relationships
Solid customer relationships and integration into clients’ operating models are the cornerstones of a successful business. Having developed bespoke software and interfaces for leading public and private organisations in key industry verticals including healthcare, banking and telecommunications, have rendered AYO’s services indispensable to a number of large institutional clients. While this strategy has ensured sustainable revenues for the Group, we acknowledge that in the current precarious economic conditions, overreliance and excessive dependency on key customers may present unique challenges.
Our client relationships are extremely important to us. We understand that even large organisations have been adversely affected by the pandemic and may require more lenient payment terms or additional support in the short term. Thus, we continuously monitor our client portfolio and strive to mitigate risky overexposure.
Succession planning
With a number of aspirational employers from all over the world adopting permanent remote working arrangements, opportunities for talented, dedicated employees with critical and scarce skills, have multiplied exponentially. Companies in the technology industry have traditionally been highly dependent on their ability to attract and retain key skills and this current trend indicates that talent management will only get more challenging in future.
AYO utilises a blend of “buy” and “build” talent strategies to develop sustainable talent pipelines and succession plans for key positions throughout the organisation. Additionally, the Group continues to monitor international best practices in terms of working arrangements for employees, to ensure we balance our operational requirements with employees’ needs and remain a competitive aspirational employer.
Evolving digital adoption
The digital workplace is one of the silver linings brought on by the pandemic that is here to stay. So is the exponentially amplified adoption of a “digital lifestyle” from online learning to shopping, banking and literally every aspect of life, business and economics. This trend is material to a technology-based business, such as ours, as it presents a number of opportunities to create value for all stakeholders.
Understanding the trends of the digital evolution in South Africa and accurately forecasting the speed and extend of their adoption is material to our strategic decisions. For example, recognising early on that the remote and hybrid working arrangements will remain with us even in a post-COVID world, informed our decision to invest in Kathea Communications, which strengthens our already established presence in the unified communications field, while also positions us in the agile office environment niche, which is expected to grow in the medium term, as a number of businesses defer static lease agreements.
Integrity, ethics and transparency
Trust is imperative for an investment holding company to thrive and grow. Thus, we view nurturing trusting relationships with our investors, subsidiaries and stakeholders as material to our business and essential to our success. Given the destructive impact on our reputation of adverse media coverage (whether truthful or not), it is critical that we practice and demonstrate good governance and exemplar corporate citizenship. In addition, we face intense regulatory scrutiny, which we strive to satisfy through comprehensive, timeous and transparent communication and reporting.
Building and nurturing trust cannot be achieved overnight. It requires consistent display of integrity, ethical behaviour and transparent communication. We continuously endeavour to proactively engage with our stakeholders, hold constructive discussions and consider their input, concerns and needs in our strategic decision making. Our communications team incessantly monitors disclosure requirements and best practices and strives to exceed stakeholders’ expectations.
Legal challenges
Prolonged litigation is another factor that can negatively influence our business’ reputation, as well as significantly burden our resources – both financial and human. While we accept that legal challenges are not uncommon in the corporate environment, we acknowledge that such matters can have a material impact on our ability to create and preserve value and thus, aim to find amicable resolution to disputes through dialogue and mediation.
Occasionally, we also need to consider whether the prospects of success and associated benefits outweigh the cost of litigation (on all our capitals) and where the expense is not warranted, “cut our losses”, so to speak. An apt example is the dispute we entered into with FNB during the reporting period, where the urgent interdict we lodged in court was dismissed on the grounds of urgency. While our legal counsel was fairly confident in AYO’s prospects, should we pursue the case via ordinary court roll, the Board opted to abandon the matter and focus on stakeholder value preservation in the long term.
Environmental sustainability
Although our operations have minimal impact on the natural environment, we are cognisant of the growing expectations from the business community to meaningfully address ecological conservation and climate change. We are also aware that the exponentially reduced life span of technological products is rapidly pushing the sector into a major contributor to air pollution and deteriorating soil and water quality. Decisive action to tackle the impact of e-waste with tangible results, therefore, can significantly advance our corporate reputation and create value for all stakeholders in the long term.
In 2021, AYO introduced a Group-wide initiative to collect and recycle e-waste, which we plan to amplify going forward. Besides meaningfully contributing to the advancement of SDGs, such initiatives reinforce our social and relationship capital and endorse our social licence to operate.