Multichoice

The group added 1.2m 90-day active subscribers, representing 7% year-on-year (YoY) growth, taking the overall 90-day active subscriber base to 18.9m households at 30 September 2019 (HY20). In the absence of specific one-off events in the prior year, subscriber growth rates reflected more normalised trends. The subscriber base is split between 10.7m households in the Rest of Africa (RoA) and 8.2m in South Africa (SA).

Revenue was up 4% (3% organic) to R25.7bn and included subscription revenue of R21.2bn, which grew at similar rates. Top line momentum was affected by the group’s strategic decision not to increase Premium prices in SA. Hardware sales and advertising revenues were lower due to the one-off prior year events, while macro-headwinds in certain markets affected disposable income and thus consumer demand.

Group trading profit rose 22% to R4.8bn (33% organic) benefitting from a R0.7bn (R1.2bn organic) reduction in losses in RoA. A further R0.7bn in costs were eliminated from the base during HY20 as part of the group’s cost optimisation programme. This resulted in overall costs being contained to a similar level as the prior period (-3% organic) and achieved the group target of keeping the growth rate in costs below that of revenue growth.

Core headline earnings, the board’s measure of sustainable business performance, was up 24% on the prior period at R1.9bn, despite the impact of the additional 5% share in SA allocated to Phuthuma Nathi in March 2019. Excluding this once-off change in the SA non-controlling interest, core headline earnings would have grown 37% YoY.

Consolidated free cash flow of R2.4bn was up 32% compared to the prior period. This was achieved after an improvement in the trading result from the RoA and a lower investment in set-top boxes.

Capital expenditure (capex) of R0.3bn was in line with the prior period. The cash conversion ratio (EBITDA-capex/EBITDA) remains positive at 96%.

As one of the largest taxpayers in Africa, MCG paid direct cash taxes of R1.9bn. This was 9% higher than the previous period mainly due to a higher final tax payment in SA.

Net interest paid amounted to R164m, slightly up on the prior period primarily due to the impact of reclassifying operating leases as finance leases under IFRS 16. The group balance sheet remains strong with R9.9bn in net assets, including R6.9bn of cash and cash equivalents. Combined with R3.5bn in undrawn facilities, this provides R10.4bn in financial flexibility to fund our business plan. This strong financial position is after providing R0.8bn for share buy-backs (including R0.7bn to fund the MCG restricted share plan) and settling our R1.5bn dividend to Phuthuma Nathi.

South Africa

The SA business delivered solid results, reporting subscriber growth of 7% YoY or 0.6m subscribers on a 90-day active basis. Revenue growth of 2% (2% organic) to R17.0bn was muted as healthy subscriber growth in the mass market was negated by a 0% price increase on the Premium bouquet, which was well received and resulted in a stabilisation at 2019 year-end levels. As expected, the ongoing change in subscriber mix towards the mass market resulted in monthly average revenue per user (ARPU) declining 5% from R308 to R292.

Trading profit was slightly down from the prior period at R5.2bn, predominantly due to the cost impact of broadcasting three major sport events in the first half and once-off restructuring costs in our customer care division. Despite these costs, the trading margin remained relatively stable at 30%.

SuperSport continues to deliver a truly world-class sport offering. During the reporting period, we broadcast the ICC Cricket World Cup, the African Cup of Nations and the start of the Rugby World Cup, where SuperSport is one of the official broadcasters.

Connected Video users on both the DStv Now and Showmax platforms continue to grow as online consumption increases. To position our business for the future, Showmax launched a localised version in Nigeria, and added a mobile-only application in Nigeria and Kenya. Continued improvements have been made to the user interface and the content slate including simulcasts with pay-TV (e.g. Game of Thrones), increased investment in original local content and the procurement of additional content for Connected Video platforms.

Rest of Africa

The RoA business grew the 90-day active subscriber base 7% YoY or 0.7m subscribers. Growth was affected by one-off sports events in the prior year and some country-specific issues. These included the current hyperinflationary economic environment in Zimbabwe, which has caused significant pressure on consumers due to the lack of US dollar liquidity, as well as severe electricity shortages in countries like Zambia as a result of the ongoing drought, which has impacted the demand for services like pay-TV.

Revenue of R7.8bn represented 5% growth YoY (3% organic), with subscription revenue contributing R7.1bn, up 8% YoY (6% organic). The main difference in growth rates between total revenue and subscription revenue was lower hardware sales in the current year due to one-off prior year growth campaigns. ARPU in the RoA at R111 (HY19: R115), was down due to an ongoing shift in subscriber mix as we increasingly penetrate the mass market. Material currency depreciation in the Angolan kwanza (34%) and the Zambian kwacha (24%) also affected the segment’s financial results.

Trading losses reduced 47% (73% organic) or R0.7bn (R1.2bn organic) to R0.8bn. Some portion (R0.6bn) of this organic improvement was due to non-recurring investment in decoder subsidies and content. The remaining R0.6bn improvement was as a consequence of subscription revenue growth, supported by a cost base which was well controlled at prior year levels.

Cash balances of R768m (FY19: R298m) held in Angola and Zimbabwe remain exposed to weaker currencies. The increase since 31 March 2019 is due to the lengthy administrative process to obtain approval to repatriate funds of the Angolan operation, which was recently converted from a franchise to a subsidiary. The approvals have now been received, with remittances recommencing slowly post 30 September 2019.

Technology segment

The Technology segment, Irdeto, delivered strong results. It contributed R0.9bn in revenues, an increase of 32% YoY (24% organic), underpinned by new customer wins in India direct-to-home (DTH) and the USA over-the-top (OTT). The revenue growth, when combined with tight cost controls and a favourable HY20 product mix, resulted in a fourfold increase in trading profit to R0.5bn.

To diversify its reliance on traditional broadcasting revenues, Irdeto continues to invest in connected industries, a market which is showing great promise. New services such as security solutions for internet video, online gaming and the Internet of Things, especially connected vehicles, currently contribute more than 30% of technology revenues. We expect this to continue to grow and contribute more meaningfully to group revenues in future.

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

In the second half of FY20, subject to a stable regulatory environment, the group will continue to scale its video-entertainment services across the continent, mainly in the middle and mass markets.

We remain focused on ramping up our investment in local content and expanding our OTT offering. Seasonality normally has a bigger impact on our second-half performance, both in terms of customer growth and costs, and will largely determine our full-year performance. Combined with the risks associated with a weak macro- and consumer environment that appears to be deteriorating, we are cautious about expectations for the rest of the year. Despite these challenges, we remain committed to delivering solid financials and margin expansion going forward.

No interim dividend has been declared. The group remains on track to declare a dividend of R2.5bn for FY20.

On 5 July 2019, Mr Jabulane (Jabu) Albert Mabuza and Dr Fatai Adegboyega Sanusi were appointed to the board as independent non-executive directors.

Ms Donna Maree Dickson resigned as group company secretary on 30 September 2019. The group is currently in the recruitment process to find a suitable replacement.

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

The preparation of the condensed consolidated interim financial statements was supervised by the group’s chief financial officer, Mr Tim 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 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 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 condensed consolidated interim financial statements. These non-IFRS performance measures constitute pro forma financial information in terms of the JSE Listings Requirements.

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 condensed consolidated interim financial statements. 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 condensed consolidated interim financial statements. The review conclusion of the company’s external auditor is included on page 19 and the assurance report on non-IFRS measures included in note 11. The auditor’s report does not necessarily report on all the information contained in these condensed consolidated interim 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 accompanying financial information from the company’s registered office.

On behalf of the board

Imtiaz Patel Chair

Calvo Mawela Chief executive