MULTICHOICE GROUP LIMITED

Despite global and country-specific macro-economic challenges, the group added 0.9m 90-day active subscribers to reach 19.5m households as at 31 March 2020 (FY20). This represents growth of 5% year on year (YoY), which is somewhat lower compared to the prior year due to rising consumer pressure in many markets, drought-related electricity shortages in southern Africa, and the fact that last year's growth benefited from specific one-off events such as the FIFA World Cup which did not recur this year. The 90-day subscriber base is split between 11.1m households (57%) in the Rest of Africa and 8.4m (43%) in South Africa.

Revenue increased 3% (2% organic) to ZAR51.4bn and included subscription revenue of ZAR42.8bn, which increased 4% (3% organic) YoY. Top line momentum was affected by modest subscriber growth due to macro-headwinds in certain markets, the group's strategic decision not to increase Premium prices in South Africa and a reduction in sub-licence revenues from the South African public broadcaster. This was offset by an increased contribution of 12% (4% organic) by the technology business, Irdeto.

Group trading profit rose 14% to ZAR8.0bn (29% organic), benefiting from a ZAR0.8bn (ZAR1.8bn organic) reduction in losses in the Rest of Africa. A strong focus on cost containment allowed for a further ZAR1.4bn in costs to be eliminated from the base during the year. Overall costs were contained to a 1% increase compared to the prior year (-3% organic) and resulted in positive operating leverage, with the group achieving its target of keeping the growth rate in costs below that of revenue growth.

The group continued its strategic focus of investing in local content, increasing the library of hours available by 8%. As a result, the total local content library now exceeds 56 800 hours. Trackers, the group's first major co-production, was a success and received record ratings in South Africa. Furthermore, four additional dedicated local content channels were launched in the Rest of Africa, taking the continental total of group-owned local content channels to 10.

Core headline earnings, the board's measure of sustainable business performance, was up 38% on the prior year at ZAR2.5bn, despite the impact of the additional 5% share in SA being allocated to Phuthuma Nathi (PN) in March 2019. Excluding this once-off change in the South African non-controlling interest, core headline earnings would have grown 57% YoY.

Consolidated free cash flow of ZAR5.2bn was up 59% compared to the prior year, driven mainly by an improvement in the trading result from the Rest of Africa and a reduction in working capital.

Capital expenditure of ZAR0.8bn was slightly down on the prior year and included a ZAR0.2bn investment as part of a multi-year programme to futureproof the group's customer service, billing and data capabilities.

As one of the largest taxpayers in Africa, the group paid direct cash taxes of ZAR4.0bn, slightly higher than the prior year driven by higher profitability.

Net interest paid increased marginally to ZAR336m, due to the impact of reclassifying operating leases as leases under IFRS 16 and the translation of interest on US dollar transponder lease liabilities due to a weaker rand.

The strength of the balance sheet is critically important given the uncertain economic impact of COVID-19 and the lower oil price. Some ZAR9.8bn in net assets, including ZAR9.1bn of cash and cash equivalents, combined with ZAR5bn in undrawn facilities, provides ZAR14.1bn in financial flexibility to fund the business. This strong financial position is after spending ZAR1.7bn on share buy-backs (including ZAR0.7bn to fund the MCG restricted share plan) and ZAR1.5bn to settle the FY19 PN dividend during the year.

The COVID-19 pandemic is having a significant impact across the world, adversely affecting the lives of the group's customers and its employees. While we have seen some victories in combating the disease, the full extent of the damage remains unknown at this stage. At the same time the drop in the oil price has put pressure on currencies like the Nigerian naira and Angolan kwanza and these are likely to depreciate further in the coming year.

In the short term, the group has reacted swiftly in implementing its business continuity plans well ahead of the forced lockdowns imposed by governments. Content line-ups were adjusted and new content was introduced on general entertainment and sport channels. The impact of this has been largely positive and resulted in subscriber growth at the end of the financial year.

Subsequent to year-end the group continued to deliver uninterrupted services to customers. Local content productions have largely recommenced under strict health protocols and international content schedules have remained unaffected to date. In sport, the group will be recommencing the broadcast of football leagues such as the English Premier League, La Liga and Serie A. Other content such as WWE, US PGA golf and UFC have already been on air and international rugby, cricket, tennis and formula 1 are in final plans to recommence on a ‘behind closed doors basis'.

The group has also supported various markets with relief initiatives associated with COVID-19. This includes making more content available in lower packages, providing financial support to the broadcast supply chain and donations of personal protective equipment. The total financial impact associated with these initiatives amounts to ZAR238m.

The aftermath of the virus and a lower oil price, although uncertain in quantum, will have a negative impact on the economies of many of the group's major markets. Weaker currencies, liquidity shortages, higher levels of unemployment, reduced consumer spending and supply chain interruptions are all expected to impact the financial performance of the group in the medium term.

The risks above are, however, mitigated by the group's quality product offering, robust cost optimisation process and hedging programmes. A strong financial position, with ZAR9.8bn in net assets and ZAR14.1bn of available liquidity, should allow the group to navigate these economic challenges and to continue providing acceptable shareholder returns over time.

South Africa

The South Africa business held up well in a tough consumer climate, delivering subscriber growth of 6% YoY or 0.5m subscribers on a 90-day active basis. The impact of COVID-19 and the associated lockdown saw an uplift in subscribers towards the end of March.

Revenue growth of 1% to ZAR34.2bn was muted as healthy subscriber growth in the mass market was negated by not effecting a price increase on the Premium bouquet, which served to stabilise the Premium segment. As expected, the ongoing change in subscriber mix towards the mass market, combined with the pricing strategy, resulted in monthly average revenue per user (ARPU) declining 4% from ZAR302 to ZAR290.

The trading margin remained stable at 30%, underpinned by trading profit of ZAR10.3bn. Despite tight cost controls, trading profit increased only 1% YoY due to muted revenue growth and the cost impact of broadcasting three major sporting events in the same financial year.

SuperSport continues to deliver a truly world-class sport offering. During the year, it broadcast the ICC Cricket World Cup (CWC), the Africa Cup of Nations (AFCON) and the Rugby World Cup (RWC), where South Africa was crowned world champions for the third time.

Connected video users on both the DStv Now and Showmax platforms continue to grow as online consumption increases. To position the business for the future, leverage the group's scale and enhance the product ecosystem by providing access to a wider variety of content, the group recently concluded distribution agreements with two major international Subscription Video on Demand (SVOD) providers. Showmax also commenced the trialling of sport to subscribers with positive early user engagement.

Rest of Africa

The Rest of Africa business grew the 90-day active subscriber base by 4% YoY or 0.4m subscribers. Growth was affected by one-off sport events in the prior year and some country-specific issues. In Zimbabwe, the current hyperinflationary economic environment and lack of US dollar liquidity caused significant pressure on consumers, while severe drought-related electricity shortages (of up to 18 hours per day) in countries like Zambia negatively impacted on the demand for pay TV services. Similar to South Africa, an increase in subscriber numbers was seen in March 2020 as lockdowns were initiated in various markets across the continent.

Revenue of ZAR15.5bn represented 4% growth YoY (3% organic). Subscription revenue grew at a similar rate and contributed ZAR14.3bn. ARPU declined to ZAR110 (FY19: ZAR114), primarily due to material currency depreciation in the Angolan kwanza (47%) and the Zambian kwacha (25%).

Trading losses narrowed by 22% (47% organic) or ZAR0.8bn (ZAR1.8bn organic) to ZAR2.9bn. This represents a 7% improvement in the trading margin, driven by a combination of revenue growth, lower decoder unit costs which reduced the overall subsidy expense, and effective cost control.

Cash balances of ZAR222m (FY19: ZAR298m) held in Angola and Zimbabwe remain exposed to weaker currencies. The reduction YoY can be attributed to improved liquidity in Angola due to ongoing currency depreciation affected by the central bank.

Technology segment

The technology segment, Irdeto, delivered positive results despite being the segment of the business most affected by COVID-19 in the last quarter of FY20. It contributed ZAR1.8bn in revenues, an increase of 12% YoY (4% organic). This momentum, combined with cost controls, resulted in a 25% (40% organic) increase in trading profit to ZAR0.7bn.

Irdeto continues to invest in connected industries as part of its strategy to diversify its reliance on traditional broadcasting revenues. New services such as security solutions for online video, online gaming and the Internet of Things (especially connected vehicles) are gaining traction. In the current year, the first vehicles incorporating Irdeto security technology were manufactured and a long-term customer win with one of the world's largest automotive groups was secured.

The group remains fully committed to broad-based black economic empowerment (B-BBEE) and transformation. In line with prior commitments, an offer was made to PN shareholders on 25 September 2019, to exchange up to 20% of their PN shares for shares in the MultiChoice Group. The offer closed on 28 October 2019 and resulted in 3.7m shares being issued to PN shareholders, while the group acquired 3.8m shares in PN in return. Following the conclusion of this share swap, the group's overall interest in MultiChoice South Africa increased from 75.0% to 76.4%.

In accordance with the general authority granted by shareholders at the annual general meeting, the group has repurchased 10.1m ordinary shares between September 2019 and March 2020 at an average price of ZAR96 per share. These shares are currently held as treasury shares. This does not include the 5.5m shares repurchased in June 2019 as part of the group's restricted share plan.

The group's focus for the year ahead, subject to a stable regulatory environment and the unknown impact of COVID-19, will be to continue scaling its video entertainment services across the continent (mainly in the mid and mass markets, as well as over-the-top (OTT)).

The group will keep exploring new opportunities to further expand our existing ecosystem, offering new products to enhance customer experiences and to increase revenues. It will also look to further increase its investment in local content and accelerate the uptake of OTT products by differentiating and strengthening the product offering. Our ambition is to drive further subscriber growth, scale Irdeto to a leading media and cybersecurity business globally and to continue building a sustainable business that delivers value for our stakeholders. We will also continue to invest in the development of our people and our social initiatives to continue making a meaningful impact in the communities where we operate.

Given the risks associated with a weak macro and consumer environment, and heightened by COVID-19, the group will prioritise cash generation and maintain balance sheet strength.

The board recommends that a maiden annual gross dividend be declared at 565 SA cents per listed ordinary share (ZAR2.5bn). This dividend declaration is subject to approval of the MultiChoice South Africa Holdings Proprietary Limited (MCSAH) dividend at its annual general meeting on Wednesday, 26 August 2020. The finalisation date for the dividend declaration by the company will be Thursday, 27 August 2020. Subject to the aforementioned MCSAH approval, dividends will be payable to the company's shareholders recorded in the register on the record date, being Friday, 11 September 2020. The last date to trade cum dividend will be on Tuesday, 8 September 2020 (shares trade ex-dividend from Wednesday, 9 September 2020). Share certificates may not be dematerialised or re-materialised between Wednesday, 9 September 2020 and Friday, 11 September 2020, both dates inclusive. The dividend payment date will be Monday, 14 September 2020. The dividend will be declared from income. It will be subject to the dividend tax rate of 20%, yielding a net dividend of 452 SA cents per listed ordinary share to those shareholders not exempt from paying dividend tax. Dividend tax will be 113 SA cents continuedper listed ordinary share. The issued ordinary share capital as at 10 June 2020 was 442.5m ordinary shares (including 15.6m shares held in treasury). The company's income tax reference number is 9485006192.

On 5 July 2019, Mr J A Mabuza and Dr F A Sanusi were appointed to the board as independent non-executive directors.

Mr S J Z Pacak, the lead independent director, will be stepping down as the lead independent director of the group, with effect from 3 April 2020, and will be retiring as an independent non-executive director with effect from April 2021.

Mr J A Mabuza, an independent non-executive director, will take over from Mr S J Z Pacak as the lead independent director, with effect from 3 April 2020.

Mr D G Eriksson will retire as an independent non-executive director with effect from 11 June 2020.

Ms D M Dickson resigned as group company secretary on 30 September 2019. Mrs R J Gabriels was appointed as interim company secretary on 12 December 2019 until such time as a permanent appointment is made.

No other changes have been made to the directorate of the group.

The preparation of the summary consolidated financial statements was supervised by the group's chief financial officer, Mr T N Jacobs CA(SA).

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 Rest of Africa 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 better 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 summary consolidated financial statements. These non-IFRS performance measures constitute pro forma financial information in terms of the JSE Limited Listings Requirements (JSE Listings Requirements).

The group's external auditor has not reviewed or reported on forecasts included in these summary consolidated financial statements. The audit report of the group's external auditor is included on Independent auditor's report and the assurance report on non-IFRS measures included on Assurance engagement report. The auditor's report does not necessarily report on all the information contained in these summary consolidated financial statements. Shareholders are therefore advised that, in order to obtain a full understanding of the nature of the auditor's engagement, they should obtain a copy of the auditor's report together with the full consolidated annual financial statements available on the group's website at www.multichoice.com/investors and at its registered office.

On behalf of the board