Our operating environment
The economic context in which we operate greatly affects our ability to create and preserve value for our shareholders and stakeholders. Thus, it is imperative that due consideration is given to critical environmental factors and their potential impact on our Group.
SUBDUED ECONOMIC GROWTH
Macro-economic conditions affect every company within the business ecosystem and AYO is not immune to the impact of the current universal slowdown. As an investment holding company, our financial performance is contingent on the commercial success of our operating units. Our subsidiaries, in turn, are directly affected by economic and political events.
The corona virus pandemic has provoked a fundamental shift in public spending in the short term, diminishing the priority of projects not directly related to provision of PPE, COVID testing and vaccination rollout. This has challenged our traditionally strong government and municipal customer base and large projects’ pipeline. Further, various investigations into irregular spending and corruption at national and regional level have slowed down the award and implementation of public contracts in 2021.
The social unrests in Gauteng and Kwa-Zulu Natal during the year, on the other hand, have exacerbated the financial toll on major private client organisations, particularly retail and logistics groups, who were also compelled to delay or eliminate IT expenditure, in order to minimise the financial impact of the conflicts and stabilise operations.
REGULATORY AND FISCAL CHANGES
Robust regulatory environment provides a safe framework for thriving business operations, social structures and value creation. However, it also amplifies implementation and compliance demands on the business community. Regulatory changes can influence all aspects of business operations from data management (as we saw with the POPIA coming into effect during this financial year) to third party risk management demands, capital and liquidity requirements and financial monitoring and reporting. We are cognisant of the fact that failure to swiftly adopt and implement regulatory requirements can have detrimental impact on our Company and thus, allocate adequate resources to regulatory monitoring and compliance.
Similarly, fiscal policy is an important tool for mitigating economic challenges and manipulating tax revenue is occasionally necessary to augment government income. As a responsible corporate citizen, AYO places great significance on tax compliance. Thus, we acknowledge that we are vulnerable to the impact of varying regulatory and tax requirements.
SHORTENING TECHNOLOGY LIFECYCLES
The rate of technological progress, particularly information technology, has accelerated exponentially in the 21st century. It is expected that the next decade will see more technological innovation than the last fifty years combined. While this is certainly exciting for a technology-focused group like AYO, it also poses challenges that should not be overlooked.
Whereas in certain industries product development cycles can span over years, technology-based products are often “re-invented” every 12-18 months. Given the supply chain disruptions and raw material shortages brought about by the pandemic, our operating divisions need to pay heightened attention to inventory management, in order to successfully balance anticipated demand with the risk of writing off obsolete stock.
The compressed lifecycle of technology affects not only retail-offering subsidiaries. Group companies providing hardware-as-a-service facilities face increasing demands on their capital expenditure to frequently replace outdated inventory.
CHANGING STAKEHOLDERS’ NEEDS
The impact of the COVID pandemic is far more extensive than national healthcare and economic infrastructure. The very lives and livelihoods of countless South Africans have been affected, as unemployment in the country reached unprecedented levels. This provoked a seismic shift in the needs of our communities and thus, influences our strategic direction, particularly in the corporate social responsibility domain.
While themes like access to quality education, gender equality and economic inclusivity remain relevant, a renewed urgency to address immediate community needs, such as hunger and poverty, has become prevalent. These new, exigent priorities inform our strategic and operating decisions, as we cannot overlook our mandate to create value and improve the lives of not just our immediate stakeholders but our country and continent as well.