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How our activities added value for our stakeholders

Value created for our shareholders
and lenders

Shareholders Shareholders and lenders
Delivering value to shareholders and lenders
ZAR2.9bn
in free cash flow
(ZAR5.5bn)
ZAR3.5bn
in core headline earnings in FY23
(FY22: ZAR3.5bn)
ZAR511m
in interest paid to lenders
(FY22: ZAR160m)

We continue to boast a diverse shareholder base of international and South African investors, many of whom are value investors.

We maintain open, constructive communication with our shareholders and welcome their valuable input regarding ways to enhance our approach to governance and long-term value creation. Through a disciplined approach to capital allocation that supports the execution and implementation of our strategy, our objective is to consistently generate returns that comfortably exceed our cost of capital.

In this way, we aim to deliver sustainable value for our shareholders over time and seek to be responsible custodians of our owners’ financial capital in order to sustain their trust and confidence in us.

Since our listing as a standalone group, we have increasingly drawn on debt capital markets to optimise our balance sheet and support our strategic execution and growth ambitions beyond linear video broadcast entertainment. We have a long-standing relationship with our satellite transponder lessors, but the adoption of financial gearing is a more nascent path for the group and we have embarked on it cautiously. We have taken on debt to manage working capital within the group, as well as support our investment into KingMakers and our Showmax growth plans. We also retain access to debt facilities to support the group’s capital needs if and when required.

Strategy

As a trusted brand and a platform of choice, we aim to further expand our ecosystem through growth opportunities that leverage our scale and reach across sub–Saharan Africa.

Our aim is to further enrich the lives of our customers by providing additional products and services that are scalable and underpinned by technology, while diversifying our revenue streams and creating additional value for shareholders in the process.

We remain focused on our core video entertainment business, where we continue to reinvest into our customer value proposition in the maturing South African market, notably behind our aggregation and OTT services, while pursuing growth opportunities in our Rest of Africa segment. We have invested in growing our Showmax business since 2015 and have achieved several successes over the past few years. We expect our partnership with Comcast, NBCUniversal and Sky to help us step change our ambitions for this business in future. We are also expanding our broader consumer service offering by leveraging our sizeable platform and highly engaged subscriber base. Our aim is to further enrich the lives of our customers by providing additional products and services that are scalable and underpinned by technology, while diversifying our revenue streams and creating additional value for shareholders in the process. Our initiatives in sports betting and interactive entertainment, fin-tech and home services are indicative of these ambitions.

Capital allocation

We have a strong balance sheet and robust free cash flow generation that supports our capital allocation process. We typically aim to fund our business through operating cash generation, lease financing and, increasingly, debt capital.

With regard to allocating capital, our immediate priority is to fund the cash needs of the Rest of Africa segment after returning it to trading profitability this year. We are targeting sustainable, standalone free cash flow generation in the year ahead. We also need to ensure that our business retains sufficient operating cash throughout the course of the year to cover operating costs, material ad hoc working capital outlays and exogenous challenges or disruptions, with the ongoing US dollar liquidity shortage in Nigeria being a case in point.

Although we do not have a dividend payout policy in place, we have a policy to return excess cash to shareholders. As the group had excess cash to return to shareholders, we paid a ZAR2.5bn dividend in each of the years from FY20 to FY22. However, given the current trading dynamics in our core South Africa market and the foreign exchange and US dollar liquidity challenges in our core Nigerian market, as well as our growth ambitions for our Showmax streaming business, we did not declare a group dividend for FY23. While we need to accommodate the macro-economic and foreign exchange environment which is beyond our control, we envisage reinstating our group dividend in the medium term as our Rest of Africa business returns to being self funded and our Showmax business gains scale and require less investment support.

Subject to MultiChoice South Africa shareholders approving its dividend in August 2023, and as part of the process of upstreaming dividends to the group, we will pay ZAR1.4bn to Phuthuma Nathi shareholders this year (FY22: ZAR1.5bn).

Beyond reinvesting in our business and the operational considerations described above, we carefully evaluate targeted investment opportunities where strategically relevant and value accretive to shareholders, while also proactively managing our leverage profile. We refinanced our existing debt in FY23 at better rates and created additional headroom to fund our group’s working capital needs and provide adequate financial flexibility to support the group’s various strategic initiatives. We will consider general share buy-backs and/or special dividends in future should we have residual free cash flow at our disposal. Our shareholders and lenders are increasingly focusing on environmental, social and governance (ESG) issues (including executive remuneration) and we continuously engage with them on these matters. We are committed to driving ongoing improvements in our ESG efforts and have ESG targets in our executive compensation framework. We aim to make sound strategic and capital allocation decisions that we believe will ultimately support our market valuation over time. However, we do not obsess over short-term movements in our share price or our market 'rating'. Our average share price (at closing) for FY23 was ZAR122.46, reaching a high of ZAR147.48 in March 2023 and a low of ZAR110.63 in September 2022.


We discuss the business's financial performance and position in FY23 in the CFO's performance review.
We actively engaged with shareholders on remuneration, along with other governance topics in the past year as detailed in the remuneration report. We specifically deal with governance matters in our governance report in CFO's performance review and with environmental and social issues in Value created for society.
Critical issues for our shareholders and lenders
1

The Showmax partnership with the Comcast, NBCUniversal and Sky

The rationale for and details behind the Showmax partnership with Comcast, NBCUniversal and Sky (announced during FY23, but only effective in FY24).

How we address them

With the announcement of the Showmax partnership with Comcast, NBCUniversal and Sky, we had to balance the need for transparency for our shareholders with a) the need to protect our competitive positioning ahead of launch and b) the needs of our joint venture partner. As a result, we have revealed our rationale for doing the deal, as well as context around the opportunity we see developing, as part of our deal announcement and as part of our Capital Markets Day held in May 2023.

We will share incremental detail with the market as part of our semi-annual results reporting processes and post the service launch which is currently planned for 2H FY24. We have also engaged with our banking partners through this process given the incremental gearing we plan to take on to fund the required investment behind our streaming platform.

Critical issues for our shareholders and lenders
2

The prospects for our South African business

In a tough macro environment with greater disruption risk from OTT competitors than our Rest of Africa markets, the outlook for the South African business is to maintain profitability and cash generation. However, as guided in our FY22 results process, we expected the South African segment trading margin to come under pressure into FY23 and downgraded our target margin range from 30%-32% previously to 28%-30% in FY23. As a result of a deteriorating macro environment and elevated loadshedding, our margins deteriorated below the guided range requiring a voluntary update to revise our margin guidance to 23%-28% for FY23. This created concerns and questions for our investors and analysts.

How we address them

Our subscribers have been directly impacted by over-indebtedness, higher interest rates, fuel price, food and other inflation and rising unemployment and were already under pressure when we reported our 1H FY23 results to the market in November 2022. Although we had a solid festive and FIFA World Cup period in 3Q FY23, elevated levels of loadshedding severely impacted the activity levels of the base into the seasonally weaker 4Q FY23 period. We have found that when loadshedding consistently reaches stages five and six, TV viewing and subscriber activity shows a marked deterioration.

These dynamics negatively impacted our subscriber growth, retention and activity trends and resulted in a topline shortfall relative to our expectations. Fortunately, we have seen some deceleration in the Premium losses and sustained growth in the mass market and see further scope to drive penetration at the lower end over time. We are also reinvesting in enhancing our consumer value proposition with new consumer services, as well as cost-saving opportunities such as our bundled offerings and Rewards programme. We have given our subscribers more opportunities to watch their favourite shows by introducing our ‘Switch’d on’ channels in response to the higher levels of loadshedding.

We continue to tightly manage our cost base through explicit cost savings and the pursuit of operating efficiencies throughout the business.

Critical issues for our shareholders and lenders
3

The prospects for our Rest of Africa business

Returning our Rest of Africa segment to profitability, cash flow breakeven, full funding breakeven and normalised margins remains a key point of focus for shareholders and lenders.

How we address them

The Rest of Africa represents a sizeable market with estimated addressable households in excess of 39m, but is a complex socio-political environment characterised by intermittent volatility of inflation rates and exchange rates, among others.

When we listed in 2019, we committed to returning Rest of Africa to profitability in the medium term, subject to normal currency depreciation. This turnaround strategy was underpinned by driving scale and maintaining tight cost controls.

Since then, the business has delivered a strong operational performance growing 90-day active subscribers by 3.6m in four years. It has consistently narrowed its YoY trading losses, despite having to absorb exceptional currency weakness and has recorded a trading profit of ZAR0.9bn in FY23. In the absence of significant currency depreciation, the business would have reached that milestone sooner and we remain on track to reach free cash flow breakeven in FY24.

Critical issues for our shareholders and lenders
4

Movements in the share register

Per the requisite SENS announcement, Canal+ increased its stake in the group to 30.27% in February 2023 and held 31.67% at year-end, which garnered ongoing interest of other investors, particularly regarding their intentions.

How we address them
While we do not comment on our shareholders or on our interactions with them, we remain committed to constructive dialogue, acting in the best interests of all our shareholders and creating sustainable long-term shareholder value. The Electronic Communications Act No 36 of 2005 (as amended) and our MOI cap foreign voting rights at 20%.
Critical issues for our shareholders and lenders
5

Clarity on the group’s dividend policy

Although shareholders have varying perspectives and mandates, dividends are often an important foundation for an investment case.

How we address them

Our policy remains to return excess cash to shareholders and to do so in the most optimal way. Given deteriorating macro conditions in key markets, our strategy to return Rest of Africa to funding breakeven and our near-term investment opportunities and longer-term growth ambitions, we have not declared a dividend for FY23.

Critical issues for our shareholders and lenders
6

KingMakers’ progress and plans

Investors remained focused on the outlook and prospects for KingMakers given our sizeable investment.

How we address them

The company has continued to deliver significant growth, with top-line growth of 51% in FY23 (FY22: 68%) and profitability in its core Nigerian business.

It continues to pursue its product rollout plan but took the decision to pause its operations in its sub-scale markets in the Kenyan, Ethiopian and Ghanaian markets. Focus remains on the core Nigerian business, where it is scaling rapidly, and the South African market launch, where the opportunity can really move the needle for the KingMakers business.