MULTICHOICE GROUP LIMITED

The summary consolidated financial statements are prepared in accordance with the requirements of the JSE Listings Requirements for preliminary financial statements and the requirements of the Companies Act applicable to summary financial statements. The summary financial statements were prepared in accordance with the framework concepts and the measurement and recognition requirements of IFRS and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee (APC) and the Financial Pronouncements as issued by the Financial Reporting Standard Council (FRSC), and to also, as a minimum, contain the information required by IAS 34 Interim Financial Reporting. The accounting policies applied in the preparation of the consolidated annual financial statements from which the summary consolidated financial statements were derived, are in terms of IFRS and are consistent with those accounting policies applied in the preparation of the previous consolidated annual financial statements and the prior year summary consolidated financial statements, other than for the adoption of IFRS 16 Leases and IFRIC 23 Uncertainty over Income Tax Treatments. A copy of the full audited consolidated annual financial statements is available for inspection from the company secretary at the registered office of the group or can be downloaded from the group’s website: www.multichoice.com/investors.

The summary consolidated financial statements are presented on the going-concern basis.

The summary consolidated financial statements are presented in South African rand (ZAR), which is the group’s presentation currency, rounded to the nearest million. The closing US dollar exchange rate at 31 March 2020 of 17.86:1 (31 March 2019: 14.50:1) has been utilised for the consolidation of the Rest of Africa and technology segments who have a US dollar presentation currency. The average US dollar exchange rate utilised for the year ended 31 March 2020 was 14.99:1 (31 March 2019: 13.82:1).

The summary consolidated financial statements do not include all the notes normally included in a set of consolidated annual financial statements. Accordingly, this report is to be read in conjunction with the full consolidated annual financial statements for the year ended 31 March 2020.

The group has adopted all new and amended accounting pronouncements issued by the International Accounting Standards Board that are effective for financial years commencing 1 April 2019. The impact of the new or amended accounting pronouncements that are effective for the financial year commencing 1 April 2019 have been highlighted below.

Trading profit includes the finance cost on transponder lease liabilities but excludes the amortisation of intangible assets (other than software), impairment of assets, equity-settled share-based payment expenses and other operating gains/losses (apart from once-off reimbursements under transitional services and separation agreements from the group’s previous legal owner amounting to R82m).

New standards adopted as at 1 April 2019:

IFRS 16 LEASES

Leasing activities

The group primarily leases transponders, office buildings, information technology (IT) equipment and vehicles. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. Lease agreements do not impose any covenants, but leased assets may not be used as security for borrowing purposes, except for the related transponder assets. Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss and represent no change from the previous reporting period’s accounting treatment. Short-term leases have a term of 12 months or less. Low-value assets comprise leases with a value below ZAR75 000 per annum.

For leases previously classified as finance leases, the group recognised the carrying amount of the lease asset and lease liability as the carrying amount of the right-of-use asset and the lease liability at the date of initial application. The most significant impact of this was the group’s transponder leases, which resulted in a category transfer within property, plant and equipment of ZAR15.7bn as at 1 April 2019.

Practical expedients

In applying IFRS 16 for the first time, the group has used the following practical expedients permitted by the standard:

• applying a single discount rate to a portfolio of leases with reasonably similar characteristics;
• low-value assets comprise leases with a value below ZAR75 000 per annum;
• relying on previous assessments on whether leases are onerous as an alternative to performing an impairment review – there were no onerous contracts as at 1 April 2019;
• accounting for leases with a remaining lease term of less than 12 months as at 1 April 2019 as short-term leases;
• excluding initial direct costs for the measurement of the right-of-use asset at the date of initial application; and
• using hindsight in determining the lease term where the contract contains options to extend or terminate the lease.

The group has elected the practical expedient not to reassess the definition of leases. Instead, for contracts entered into before the transition date the group relied on its assessment made applying IAS 17 Leases and IFRIC 4 Determining whether an Arrangement Contains a Lease.

MEASUREMENT OF RIGHT-OF-USE ASSETS

The associated right-of-use assets for property leases were measured on a retrospective basis as if the new rules had always been applied. Other right-of-use assets were measured at the amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised on the summary consolidated statement of financial position as at 31 March 2019.

The right-of-use assets are subsequently measured at cost less any accumulated depreciation and impairment losses and adjusted for certain remeasurements of the lease liability. The right-of-use assets are depreciated over the shorter of the assets’ useful lives and the lease term on a straight-line basis. Lease payments were previously disclosed as operating expenses. Under the right-of-use model, depreciation and interest expense are now disclosed in the summary consolidated income statement.

MEASUREMENT OF LEASE LIABILITIES

During the current financial year, on adoption of IFRS 16, it was noted that certain other commitments were incorrectly classified as part of operating lease commitments in the prior year summary consolidated annual financial statements. The disclosure of operating lease commitments and other commitments as included in note 7 was therefore restated as at 31 March 2019, as follows:

Lease liabilities are presented as a separate line item on the summary consolidated statement of financial position.

Lease liabilities are initially measured at the present value of the lease payments and subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect lease payments made.

Right-of-use assets are presented as part of the property, plant and equipment line item on the summary consolidated statement of financial position.

IFRIC 23 AND RELATED IFRIC AGENDA DECISION

The group previously presented uncertain income tax liabilities as part of accrued expenses and other current liabilities.

Following the aforementioned IFRIC agenda decision, the group has reconsidered its accounting treatment. The group has adopted the treatment set out in the IFRIC agenda decision and has reclassified uncertain income tax-related liabilities from accrued expenses and other current liabilities to taxation liabilities in the summary consolidated statement of financial position. This change in presentation has been accounted for retrospectively and comparative information has been restated.

No additional current or deferred tax liabilities were recognised as a result of IFRIC 23.

IMPACT ON THE SUMMARY CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

The total impact of the reclassification of liabilities resulting from income tax uncertainties is as follows:

COVID-19 considerations

OVERVIEW

The coronavirus (COVID-19) pandemic has had a significant impact across the world, adversely affecting the lives of the group’s customers and its employees. The first impact was noted in the group in January 2020, with major markets all impacted from March 2020 onwards. Based on the magnitude of the pandemic and its potential impact on the summary consolidated annual financial statements, management has conducted a review of all possible financial effects the virus could have on the measurement, presentation and disclosure provided.

CONSIDERATION OF POTENTIAL IMPACT

Key areas considered are reflected in the table below, including whether or not they were deemed to have a significant impact on the group:

Accounting policies for potential high impact areas

The following items have been assessed as potentially having a high or moderate impact on the group and therefore specific accounting policies have been developed:

PROGRAMME AND FILM RIGHTS

The group has assessed the likelihood of sports events (in respect of which the group has the broadcasting rights) taking place and the associated contractual rights in the event that these are expected to or have been cancelled. The recoverability of these assets will be through content being broadcast (potentially deferred and in a different format), refunds supported by contractual protection, or a combination of these methods. In terms of classification, assets will be classified and presented as part of content assets as long as the sports event is not cancelled in its entirety. To the extent that sports events are cancelled, and the amounts paid are refundable to the group, these are recognised as financial assets. Any changes to amortisation and useful lives will be continuously assessed as events and uncertainties unfold and will be adjusted on a prospective basis.

SUBSEQUENT EVENTS

The group considers information obtained subsequent to the reporting date, in relation to known or knowable events and expected eventualities identified as at 31 March 2020, as adjusting subsequent events. With regards to financial reporting impacts associated with COVID-19, the key principle is that COVID-19 is considered to be sufficiently prevalent in the group’s major markets at 31 March 2020. Therefore, COVID-19 related events that arise in the post-balance sheet period, that provide additional information in relation to assets and liabilities in existence at 31 March 2020, have been considered adjusting subsequent events. New events which occur after 31 March 2020, which do not relate to existing assets and liabilities related to COVID-19 at the reporting date (such as donations to relief initiatives), are considered to be non-adjusting subsequent events, and these, together with their relating financial effects, have been disclosed to the extent that they are considered to be material. Refer to note 10 for disclosure of adjusting and non-adjusting events.

HEDGING ON UNCERTAIN SPORTS RIGHT OBLIGATIONS

The group has considered, in light of the impact on sports rights events being delayed/ cancelled, whether these transactions are still considered to be ‘highly probable forecast transactions’. This includes whether the volume or amounts involved will be lower than forecast or whether it is now no longer highly probable that the forecast transaction will occur. The group concluded that the economic hedging relationship under IFRS 9 still largely exists (apart from cancelled events) and the underlying cash flows are highly probable at 31 March 2020.

Management expects that 35% of the transaction price allocated to the unsatisfied contracts as of 31 March 2020 will be recognised as revenue during FY21 (ZAR77m) and 30% (ZAR66m) will be recognised as revenue in the FY22 reporting period. The remaining 35% (ZAR76m) will be recognised as revenue in FY23 and thereafter. The amount disclosed above does not include variable consideration which is constrained.

Management expects that 35% of the transaction price allocated to the unsatisfied contracts as of 31 March 2019 will be recognised as revenue during FY20 (ZAR123m) and 31% (ZAR109m) will be recognised as revenue in the FY21 reporting period. The remaining 34% (ZAR118m) will be recognised as revenue in FY22 and thereafter. The amount disclosed above does not include variable consideration which is constrained.

All other technology contracts are for periods of one year or less or are billed based on time incurred. As permitted under IFRS 15, the transaction price allocated to these unsatisfied contracts is not disclosed and is also not material.

FY19 empowerment transaction

On 4 March 2019, the date of the group unbundling from Naspers Limited, the group allocated, for no consideration, an additional 5% stake in MultiChoice South Africa Holdings Proprietary Limited to Phuthuma Nathi Investments (RF) Limited and Phuthuma Nathi Investments 2 (RF) Limited (collectively Phuthuma Nathi (PN)). In terms of IFRS 2 Share-based Payments, this transaction is treated as an equity-settled share-based payment. The value of the 5% allocated to PN shareholders has been calculated at ZAR2.6bn which has been included in the summary consolidated income statement and in retained earnings in the summary consolidated statement of changes in equity.

After the allocation to the non-controlling interest, the transaction had an adverse impact on prior year earnings and headline earnings of ZAR1.9bn or 438 SA cents per share.

The value of the ZAR2.6bn has been calculated using a discounted cash flow valuation method, applying a terminal growth factor of 5.5%, cost of equity of 11.9% and a non-controlling interest discount factor of 17.5%.

FY20 PN share swap

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 MultiChoice 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 Group increased from 75.0% to 76.4%, resulting in a decrease in the non-controlling interest of 1.4%. The transaction was treated as a share issue at fair value with an increase in share capital and a corresponding decrease in other reserves and non-controlling interests in the summary consolidated statement of changes in equity.

In addition to the items already detailed, profit before taxation has been determined after taking into account, inter alia, the following:

Commitments relate to amounts for which the group has contracted, but that have not yet been recognised as obligations in the summary consolidated statement of financial position.

The group operates a number of businesses in jurisdictions where taxes may be payable on certain transactions or payments. The group continues to seek relevant advice and works with its advisers to identify and quantify such tax exposures. Our current assessment of possible withholding and other tax exposures, including interest and potential penalties, amounts to approximately ZAR0.2bn (FY19: ZAR1.8bn). The reduction mainly relates to certain tax matters that on reassessment during the current year have been recognised as part of tax liabilities. No provision has been made as at 31 March 2020 for these possible exposures. Refer to note 1 for disclosure related to the group’s uncertain income tax liabilities.

The group’s activities expose it to a variety of financial risks such as market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk.

The fair values of the group’s financial instruments that are measured at fair value are categorised as follows:

Currency depreciation features relate to clauses in content acquisition agreements that provide the group with protection in the event of significant depreciation of the purchasing entity’s functional currency relative to the currency of the content acquisition agreement. The fair value of currency depreciation features is measured through the use of discounted cash flow techniques. Key inputs used in measuring fair value include the terms and benchmark rates contained in content acquisition agreements and average spot exchange rates prevailing at the relevant measurement dates.

The carrying values of all other financial instruments are considered to be a reasonable approximation of their fair values.

The group does not have material fair value measurements for financial instruments based on unobservable inputs (referred to as level 3 measurements). Fair values are determined using observable inputs, which reflect the market conditions including that of COVID-19 in their expectations of future cash flows related to the asset or liability at 31 March 2020.

There have been no significant related party transactions and balances in the current year.

Maiden dividend

The board recommends that a maiden annual gross dividend be declared at 565 SA cents per listed ordinary share (ZAR2.5bn). 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 per listed ordinary share. This dividend declaration is subject to approval of the MultiChoice South Africa Holdings (Pty) Ltd (MCSAH) dividend at their 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.

COVID-19

Subsequent to year-end, the group has 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.

Other subsequent events

The group recently concluded distribution agreements with two major international Subscription Video on Demand (SVOD) providers. The financial effect of these deals is not yet quantifiable as it relates to future variables such as subscriber take up and set-top box sales volumes.

There have been no other events noted, that occurred after the reporting date, including events associated with COVID-19, that could have a material impact on the summary consolidated financial statements.

for the year ended 31 March 2020

TO THE SHAREHOLDERS OF MULTICHOICE GROUP LIMITED

OPINION

The summary consolidated financial statements of MultiChoice Group Limited, contained in the accompanying provisional report in the Executive Review of our Performance which comprise the summary consolidated statement of financial position as at 31 March 2020, the summary consolidated income statement, summary consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, and related notes, are derived from the audited consolidated financial statements of MultiChoice Group Limited for the year ended 31 March 2020.

In our opinion, the accompanying summary consolidated financial statements are consistent, in all material respects, with the audited consolidated financial statements, in accordance with the requirements of the JSE Limited Listings Requirements for provisional reports, as set out in note 1 to the summary consolidated financial statements, and the requirements of the Companies Act of South Africa as applicable to summary financial statements.

SUMMARY CONSOLIDATED FINANCIAL STATEMENTS

The summary consolidated financial statements do not contain all the disclosures required by International Financial Reporting Standards and the requirements of the Companies Act of South Africa as applicable to annual financial statements. Reading the summary consolidated financial statements and the auditor’s report thereon, therefore, is not a substitute for reading the audited consolidated financial statements and the auditor’s report thereon.

THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AND OUR REPORT THEREON

We expressed an unmodified audit opinion on the audited consolidated financial statements in our report dated 10 June 2020. That report also includes communication of key audit matters. Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period.

DIRECTORS’ RESPONSIBILITY FOR THE SUMMARY CONSOLIDATED FINANCIAL STATEMENTS

The directors are responsible for the preparation of the summary consolidated financial statements in accordance with the requirements of the JSE Limited Listings Requirements for provisional reports, set out in note 1 to the summary consolidated financial statements, and the requirements of the Companies Act of South Africa as applicable to summary financial statements.

AUDITOR’S RESPONSIBILITY

Our responsibility is to express an opinion on whether the summary consolidated financial statements are consistent, in all material respects, with the audited consolidated financial statements based on our procedures, which were conducted in accordance with International Standard on Auditing (ISA) 810 (Revised), Engagements to Report on Summary Financial Statements.

PricewaterhouseCoopers Inc.
Director: Brett Stephen Humphreys
Registered auditor

Johannesburg
10 June 2020

The group has presented certain revenue, cost and trading profit metrics in constant currency, excluding the effects of changes in the composition of the group (non-IFRS performance measures). The non-IFRS performance measures are the responsibility of the board of directors and are presented for illustrative purposes. Pro forma information presented on a non-IFRS basis has been extracted from the group’s management accounts, the quality of which the board is satisfied with.

Shareholders are advised that, due to the pro forma nature of the non-IFRS performance measures and the fact that it has been extracted from the group’s management accounts, it may not fairly present the group’s financial position, changes in equity, results of operations or cash flows.

The non-IFRS performance measures have been prepared to illustrate the impact of changes in foreign exchange rates and changes in the composition of the group on its results for the year ended 31 March 2020. The following methodology was applied in calculating the non-IFRS performance measures:

1. Foreign exchange/constant currency adjustments have been calculated by adjusting the current year’s results to the prior year’s average foreign exchange rates, determined as the average of the monthly exchange rates for that year. The constant currency results, arrived at using the methodology outlined above, are compared to the prior period’s actual IFRS results. The relevant average exchange rates (relative to the South African rand) used for the group’s most significant functional currencies, were US dollar (FY20: 14.99; FY19: 13.82); Nigerian naira (FY20: 24.37; FY19: 26.28); Angolan kwanza (FY20: 27.92; FY19: 20.54); Kenyan shilling (FY20: 6.86; FY19: 7.33) and Zambian kwacha (FY20: 0.93; FY19: 0.81).
2. Adjustments made for changes in the composition of the group (or mergers and acquisitions) relate to acquisitions and disposals of subsidiaries. For mergers, the group composition adjustments include a portion of the prior year results of the entity with which the merger took place. There were no significant changes in the composition of the group during the respective reporting periods.

Non-IFRS performance measures are unaudited, however a separate assurance report issued in respect of the non-IFRS performance measures, by the group’s external auditor, can be found in the Assurance Engagement Report.

The adjustments to the amounts reported in terms of IFRS that have been made in arriving at the non-IFRS performance measures are presented in the tables below:

11.1 Key performance indicators as at 31 March

11.2 Group financials including segmental analysis

11.2.1 SEGMENTAL RESULTS

11.3 Reconciliation of headline earnings to core headline earnings

Core headline earnings excludes non-recurring and non-operating items – we believe this is a useful measure of the group’s sustainable operating performance. However, core headline earnings is not a defined term under IFRS and may not be comparable with similarly titled measures reported by other companies.

11.4 Reconciliation of cash generated from operating activities to free cash flow