1. Basis of preparation and accounting policies
 

Background information

MultiChoice Group Limited (formerly MultiChoice Group Proprietary Limited and K2018473845 (South Africa) Proprietary Limited) was incorporated on 4 September 2018, as a wholly owned subsidiary of the Naspers Limited Group (Naspers).

On 28 September 2018, MultiChoice Group Limited (the company) received a parent company contribution from Naspers of MultiChoice South Africa Holdings (Pty) Ltd group, MultiChoice Africa Holdings B.V. group, Irdeto Holdings B.V. group and the Showmax B.V. group. This resulted in the formation of the MultiChoice Group (MCG or the group).

On 27 February 2019 the group was listed on the Johannesburg Stock Exchange (JSE) and on 4 March 2019 was unbundled from Naspers to its shareholders as a dividend in specie. Up until this date the results of the group were consolidated within Naspers as part of the video-entertainment segment.

The year ended 31 March 2019 is the first financial year the group will present summarised consolidated financial results.

Presentation of summarised consolidated financial results

Although there was a change in the legal ownership of the underlying subsidiaries, the previous shareholder, Naspers, retained control of the company and its newly contributed subsidiaries both before and after the time of the creation of the new group (the Restructuring). The Restructuring is a business combination under common control as defined by IFRS 3 Business Combinations. Although IFRS 3 defines a business combination under common control, IFRS 3 does not provide any guidance on accounting for these types of business combinations. Therefore management has developed an accounting policy to present the results and financial position of the group, including the comparatives, at 31 March 2019 as follows:

  • The summarised consolidated financial results have been prepared on the basis that the entities have always been consolidated and therefore the comparative information incorporates the results, assets, liabilities and disclosures of all entities that form part of the group.
  • The summarised consolidated financial results was prepared as a combination of the historic financial information recognised in the Naspers consolidated financial statements related to the group; no new goodwill was recognised (predecessor accounting).
  • Contribution from parent – As a result of applying predecessor accounting, the contribution from Naspers was recognised at the carrying value of the net assets contributed to the company at the earliest comparative period presented in the summarised consolidated financial results. On unbundling from Naspers this has subsequently been converted to the retained earnings of the group and has been renamed as such for all periods presented.
  • Intercompany – Transactions and balances with Naspers Limited and Naspers group companies have been disclosed as related party transactions and balances up until the date of unbundling. Thereafter these have been reflected as third-party transactions and balances.

The measurement and recognition policies applied in the preparation of the summarised consolidated financial results are consistent with those applied in the combined historical financial information that was included in the pre-listing statement published on 21 January 2019.

The summarised consolidated financial results for the year ended 31 March 2019 are prepared in accordance with the JSE Limited (JSE) Listings Requirements (the JSE Listings Requirements) relevant to summarised financial statements and the provisions of the Companies Act No 71 of 2008. The JSE Listings Requirements require provisional reports to be prepared in accordance with the framework concepts, the measurement and recognition requirements of International Financial Reporting Standards (IFRS), the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council, and to also, as a minimum, contain the information required by IAS 34 Interim Financial Reporting. The summarised consolidated financial results do not include all the disclosures required for complete consolidated annual financial statements prepared in accordance with IFRS as issued by the International Accounting Standards Board (IASB). The accounting policies applied in the preparation of the consolidated annual financial statements from which the summarised consolidated financial results were derived, are consistent with those applied in previous financial years, except as set out below.

The group has adopted all new and amended accounting pronouncements issued by the IASB that are effective for financial years commencing 1 April 2018. None of the new or amended accounting pronouncements that are effective for the financial year commencing 1 April 2018 had a material impact on the group.

The group’s reportable segments reflect the components of the group that are regularly reviewed by the chief executive officer and other senior executives who make strategic decisions.

Trading profit excludes the amortisation of intangible assets (other than software), but includes the finance cost on transponder leases, while trading profit and EBITDA (earnings before interest, taxation, depreciation and amortisation) exclude impairment of assets, equity-settled share-based payment expenses and other gains/losses.

The group adopted the following new accounting pronouncements, set out below, during the current period.

Pronouncements adopted with adjustments to the opening balance of retained earnings

Accounting pronouncement   Adoption impact

IFRS 9 Financial Instruments (IFRS 9). IFRS 9 replaces the previous financial instrument recognition and measurement guidance applied by the group as contained in IAS 39 Financial Instruments: Recognition and Measurement.

  

The group has applied IFRS 9 from 1 April 2018 and elected not to restate comparatives on transition. The impact of adoption has been recognised as an adjustment to the opening balance of retained earnings as at 1 April 2018. The only significant impact of adoption was an increase in impairment allowances on trade receivables due to the IFRS 9 requirement to consider forward-looking information when determining expected credit losses. The cumulative net impact of adopting IFRS 9 was an increase of R170m in expected credit losses on trade receivables and a corresponding decrease of R157m in retained earnings and R13m in non-controlling interests. Principles of IFRS 9 hedge accounting have been applied by the group.

IFRS 15 Revenue from Contracts with Customers (IFRS 15).

IFRS 15 replaces the previous revenue recognition guidance applied by the group as contained in IAS 18 Revenue.

The group has applied IFRS 15 on a retrospective basis hence the impact is included in the comparative information contained in the summarised consolidated financial results. The application of IFRS 15 did not have a significant impact on the group’s results or financial position. The only impact from the adoption of IFRS 15 was the reclassification from set-top box revenue to installation revenue amounting to R308m in the prior year.

FRIC 22 Foreign Currency Transactions and Advance Consideration (IFRIC 22). IFRIC 22 clarifies that non-monetary assets and liabilities arising from the payment/receipt of advance consideration (eg prepaid expenses and deferred revenue) are not retranslated to the entity’s functional currency after initial recognition.

  

The group has applied IFRIC 22 on a prospective basis, with the impact of adoption recognised as an adjustment to the opening balance of retained earnings as at 1 April 2018. The impact of adoption was an increase in prepaid expenses of R205m, and a corresponding increase of R174m in retained earnings and R31m in non-controlling interests.

Adjustments to the opening balances of the statement of financial position (extract)

         As at 1 April   
         2018   
Restated   
R'm   		 2018   
Change in   
accounting   
policy(1)
R'm   		 2018   
Previously   
reported   
R'm   
ASSETS                  
Non-current assets    24 101    —    24 101   
Current assets (subtotal) 14 512    35    14 477   
Programme and film rights    5 115    205    4 910   
Trade and other receivables    4 657    (170)  4 827   
TOTAL ASSETS    38 613    35    38 578   
EQUITY AND LIABILITIES                  
Equity reserves attributable to the Group's equity holders    (4 633)   17    (4 650)  
Other reserves    (7 156)   —    (7 156)  
Retained earnings    2 523    17    2 506   
Non-controlling interests         (1 325)   18    (1 343)  
TOTAL EQUITY    (5 958)   35    (5 993)  
Non-current liabilities    28 526    —    28 526   
Current liabilities         16 045    —    16 045   
TOTAL EQUITY AND LIABILITIES    38 613    35    38 578   

Note

(1) Represents the impacts of adopting IFRS 9 Financial Instruments and IFRIC 22 Foreign Currency Transactions and Advance Consideration as of 1 April 2018.