EXECUTIVE REVIEW OF OUR PERFORMANCE
MULTICHOICE GROUP (MCG OR THE GROUP) DELIVERED SOLID RESULTS FOR THE YEAR ENDED 31 MARCH 2019.
A total of 1.6m subscribers were added across the continent, representing 12% year‑on-year (YoY) growth, taking the overall active subscriber base to 15.1m subscribers. This was achieved despite continued macroeconomic headwinds and consumer affordability pressure, illustrating the resilience of our products. The year also marks the first time that the Rest of Africa (RoA) base of 7.7m subscribers exceeded the 7.4m subscribers in South Africa.
The group generated revenue of R50.1bn, up 6% on last year (6% organic). Subscription revenue amounted to R41.2bn, up 7% on last year (8% organic). This represents an acceleration in growth from previous years driven by the continued success of our value strategy in the RoA and a healthy contribution from South Africa.
Group trading profit rose 11% to R7bn (27% organic) benefiting from a R0.9bn reduction in losses in RoA. As part of the group’s cost optimisation programme, a further R1.3bn in costs were removed from the base during the year. This resulted in overall costs being contained to an increase of 5% (2% organic) and achieved the group target of keeping the rate of growth in costs below the rate of growth in revenue.
The group continued its investment in local content adding a further 4 600 hours to take the local content library to nearly 50 000 hours. The spend on local general entertainment content as a percentage of total general entertainment content increased from 38% to 40%, in line with the strategy to reach a target of 45%.
Core headline earnings, the board’s measure of sustainable business performance, was up 10% on last year at R1.8bn.
Consolidated free cash flow of R3.3bn was up 96% compared to the prior year. This was achieved after an improvement in the trading result from the RoA, the non-recurrence of once-off content prepayments in the prior year and remittances of cash from Angola.
Capital expenditure of R1bn was slightly up YoY due to additional investments in information technology infrastructure to improve customer experience as well as the renewal of our digital terrestrial television (DTT) licence in Nigeria. The cash conversion ratio (EBITDA-Capex/EBITDA) remains positive at 90%.
As one of the largest taxpayers in Africa, MCG paid direct cash taxes of R3.7bn, in line with the previous year.
Net interest paid amounted to R305m, an increase of R152m from the previous year. This was due to an increase in the interest-bearing loan funding received from Naspers in the RoA segment which was capitalised as part of the unbundling.
The group balance sheet is strong with R9.8bn in net assets, including R6.7bn of cash and cash equivalents and R3.5bn in undrawn facilities providing R10.2bn in financial flexibility to fund our business plan.
The South African business delivered subscriber growth of 8% YoY or 0.5m subscribers and generated revenues of R33.7bn, up 3% (4% organic) from the prior year. This was on the back of healthy subscriber growth in the mass market and despite absorbing a 1% increase in valueadded tax by not passing it on to customers. The Premium segment remained under pressure as consumers were impacted by rising fuel and other costs and we competed for share of wallet. ARPU declined from R335 to R322 due to the ongoing change in subscriber mix towards the mass market. Trading profit was in line with the prior year at R10.2bn, while the trading margin remained relatively stable at 30%.
The segment continued to drive product enhancements by expanding the content offering in some of its bouquets and adding JOOX, a music streaming service, to its platform. Sustained efforts to grow the digital offering through Connected Video and position the business for the future, saw good uptake of both the Showmax and DStv Now services. As a result, online subscribers doubled YoY.
Rest of Africa
The Rest of Africa (RoA) business continued to build on the success of its value strategy by growing the subscriber base 17% YoY or 1.1m subscribers. The Fifa World Cup resonated extremely positively with our customers and we used the event to drive uptake of our products on both the satellite and digital terrestrial platforms.
The strong subscriber growth translated into revenue growth of 13% (13% organic) to R14.8bn, while trading losses reduced 19% (41% organic) or R0.9bn (R1.9bn organic) to R3.7bn. Encouragingly, average revenue per user (ARPU) in the RoA has stabilised at R159 (FY2018: R160). This is despite the macroeconomic environment that remained challenging with material currency depreciation in the Angolan kwanza (60%), Zambian kwacha (17%) and the Ghanaian cedi (11%).
To solidify our position in the Angolan market, we converted the Angolan operation from an agency to a subsidiary, which has been fully consolidated, from 1 February 2019.
Cash balances and trade receivables of R298m held in Angola and Zimbabwe that remain exposed to weakening currencies, have reduced 80% compared to last year’s balance. Liquidity constraints in Angola improved considerably in FY2019, leaving a closing cash position of R168m as at 31 March 2019.
The Technology segment delivered steady results and contributed R1.6bn in revenues and R0.6bn in trading profit. Despite the impact of non-recurring projects, which generated revenues in the prior year, tight cost controls resulted in trading profits increasing 18% (21% organic) YoY. Irdeto had some key customer wins in FY2019, including Tata Sky and Bharti Airtel in India. It continues to invest in connected industries, a market which is showing great promise, and that should start contributing more meaningfully to group revenues in the medium term.
The group remains fully committed to broad-based black economic empowerment and transformation. To reinforce this, on 4 March 2019, the date of the group unbundling from Naspers Limited, the group allocated, for no consideration, an additional 5% stake in the MultiChoice South Africa group to Phuthuma Nathi, our black economic empowerment scheme. The value of this 5% has been calculated at R1.9bn, after the impact of the non-controlling interest, which has an adverse impact on earnings and headline earnings per share of 438 SA cents.
In the year ahead, the group will continue scaling its video-entertainment services across the continent, mainly in the middle and mass markets. Top-line volume growth combined with inflationary price increases and a focus on cost containment is expected to deliver a continued reduction in trading losses in the RoA and stable margins in South Africa and the Technology segment. Innovation is core to our future, and we will continue to drive the adoption of online products (particularly in South Africa).
As set out in the pre-listing statement no dividend is being declared for FY2019. The group remains on track to declare a dividend of R2.5bn, or 569 SA cents per share, for FY2020.
On 14 May 2019, Ms Christine Sabwa was appointed to the board as an independent non-executive director. Over the past 21 years, she gained experience in audit, accounting, special investigations, revenue assurance, risk management, banking, governance and digital finance.
No other changes have been made to the directorate of the group since the publishing of the pre-listing statement on 21 January 2019.
GROUP COMPANY SECRETARY
On 1 April 2019, Mrs R J Gabriels relinquished her secretarial duties as acting group company secretary for MultiChoice Group Limited. Ms D M Dickson was subsequently appointed as the group company secretary on 1 April 2019 by the board.
PREPARATION OF THE SUMMARISED CONSOLIDATED FINANCIAL RESULTS
The preparation of the summarised consolidated financial results was supervised by the group’s chief financial officer, Mr Tim Jacobs CA(SA). These results were made public on 18 June 2019.
We operate in 50 countries, resulting in significant exposure to foreign exchange volatility. This can have a notable impact on reported revenue and trading profit metrics, particularly in the RoA where revenues are earned in local currencies while the cost base is largely US dollar denominated.
Where relevant in this report, amounts and percentages have been adjusted for the effects of foreign currency and acquisitions and disposals to reflect underlying trends. These adjustments (non-IFRS performance measures) are quoted in brackets as organic, after the equivalent metrics reported under International Financial Reporting Standards (IFRS). A reconciliation of non-IFRS performance measures (core headline earnings and free cash flow) to the equivalent IFRS metrics is provided in note 11 of these summarised consolidated financial results. These non-IFRS performance measures constitute pro forma financial information in terms of the JSE Listings Requirements.
The company’s external auditor has not reviewed or reported on forecasts included in these summarised consolidated financial results.
On behalf of the board