Multichoice

The condensed consolidated interim financial statements for the six months ended 30 September 2020 are prepared in accordance with the requirements of the JSE Listings Requirements for interim financial statements and the requirements of the South African Companies Act No 71 of 2008, as amended (Companies Act) applicable to interim financial statements. The condensed consolidated interim financial statements were prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (IFRS), the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee (APC), the Financial Pronouncements as issued by the Financial Reporting Standard Council (FRSC), and as a minimum, the information required by IAS 34 Interim Financial Reporting.

The condensed consolidated interim financial statements are presented on the going concern basis.

The condensed consolidated interim financial statements are presented in South African Rand (ZAR), which is the group’s presentation currency, rounded to the nearest million. The condensed consolidated statement of financial position was prepared using a closing USD exchange rate at 30 September 2020 of 16.75:1 (31 March 2020: 17.86:1) and has been utilised for the consolidation of the Rest of Africa and Technology segments that have a USD presentation currency. The condensed consolidated income statement and statement of comprehensive income was prepared using the average USD exchange rate utilised for the period ended 30 September 2020 of 17.35:1 (30 September 2019: 14.61:1).

The accounting policies applied in the preparation of the condensed consolidated interim financial statements are in terms of IFRS and are consistent with those accounting policies applied in the preparation of the previous consolidated annual financial statements, other than the change in the trading profit definition noted below.

The condensed consolidated interim 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 2020. A number of amendments to accounting pronouncements are effective from 1 January 2020, but they do not have a material effect on the group’s interim financial statements.

Trading profit includes the finance cost on transponder lease liabilities and the derivative profit or loss impact relating to economic hedges (ie futures) against foreign currency movements, but excludes the amortisation of intangible assets (other than software), impairment of assets, equity-settled share-based payment expenses and other operating gains/losses.

Change in trading profit definition

The group earns revenue in NGN through its subsidiary in Nigeria. The transactional currency between the intermediary parent and the subsidiary is USD; therefore, the group is exposed to foreign currency fluctuations between the USD and NGN. The group entered into futures contracts in Nigeria as a hedging mechanism in FY18. The futures assist to economically hedge the NGN exposure by changing it to USD exposure. In 1H FY21, the CODM has considered the profit or loss derived from these futures as a significant contributor in evaluating segment operational performance and in allocating resources. Therefore, the definition of trading profit has been amended to reflect the movements in the futures as recorded in the condensed consolidated income statement. The impact of this change has been disclosed on segmental review.

COVID-19 CONSIDERATIONS

Overview

COVID-19 continues to disrupt the operations and financial reporting processes of the majority of businesses globally, including MCG customers, employees and other stakeholders. Based on the magnitude of the pandemic and its potential impact on the condensed consolidated interim financial statements, management has conducted an updated 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:

UPDATE ON AREAS THAT HAD A POTENTIALLY HIGH/MODERATE IMPACT AS AT 31 MARCH 2020

The group's assessment of the following items has changed from potentially having a high impact at the previous year-end to having a potentially moderate impact on the group at 30 September 2020 and, therefore, specific accounting policies were developed.

Programme and film rights

At year-end, the group disclosed a high risk related to the likelihood of sport 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 group engaged with rights owners to negotiate refunds for the disruption to the business and subscribers due to a truncated season as well as games, delays in seasons and fixtures held behind closed doors. These refunds will be deducted against payments for future seasons. The refunds are treated as a reduction in the amortisation costs for the interrupted portion of the season.

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 30 September 2020, as adjusting subsequent events. New events which occur after 30 September 2020, which do not relate to existing assets and liabilities related to COVID-19 at the reporting date, are considered to be non-adjusting subsequent events, and these, together with their financial effects, have been disclosed to the extent that they are considered to be material. Refer to note 11 for disclosure of adjusting and non-adjusting events.

These condensed consolidated interim financial statements for the period ended 30 September 2020 have been reviewed by PricewaterhouseCoopers Inc., who expressed an unmodified conclusion thereon.

Management expects that 75% of the transaction price allocated to the unsatisfied contracts as of 30 September 2020 will be recognised as revenue during FY22 (ZAR55m) and 11% (ZAR8m) will be recognised as revenue in the FY23 reporting period. The remaining 14% (ZAR10m) will be recognised as revenue in FY24 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 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.

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.

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 condensed 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 ZAR0.3bn (31 March 2020: ZAR0.2bn). No provision has been made as at 30 September 2020 for these possible exposures.

As part of the group’s cash management strategy, during 1H FY21, the group acquired liquid notes in Nigeria to the value of ZAR1.2bn, which are backed by treasury bills in Nigeria. The amounts held by the group in relation to these liquid notes are mainly held within the group’s working capital cycle and used to meet the group’s short-term commitments. Based on the contractual terms of these investments, the local financial institution issues these liquid notes directly to the group and the group has the ability to exit its investment at its own discretion and election with immediate effect at any point in time, with no penalties being incurred. The group is guaranteed a fixed 2.5% return on its investment, even if the group exits the investment prior to its maturity date. These investments are therefore not susceptible to fluctuations in rates/returns. Upon maturity of the group’s investment in these liquid notes, the group will sell its investment back to the local financial institution directly.

The instrument meets the definition of cash equivalents as the investment is short term in nature, highly liquid, readily convertible and subject to an insignificant risk of changes in value and is therefore reflected as part of cash and cash equivalents in the condensed consolidated statement of financial position.

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 30 September 2020.

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

Acquisition of associate

In order to expand the group’s entertainment ecosystem further, it finalised an investment for a 20% shareholding in BetKing, a pan- African sports betting group. The transaction price is made up of an upfront investment of USD81m (ZAR1.3bn), with the potential for a further payment of USD31m (ZAR0.5bn) should certain earn-out targets be met between December 2021 and December 2023. As the group exercises significant influence over BetKing, the business will be equity accounted as an associate from 1 October 2020.

Treasury activities

FUNDING

To improve the group cost of capital and reinforce the statement of financial position, an amortising working capital loan of ZAR1.5bn was concluded in November 2020. The loan has a three-year term and bears interest at three-month JIBAR + 1.70%.

FACILITY DRAWDOWNS

During September 2020, the group utilised a short-term banking facility for an amount of ZAR500m. The transaction was appropriately accounted for as a financial liability at 30 September 2020. The facility was utilised as part of the working capital cycle of the group. During October 2020, the loan was repaid and the liability has been subsequently derecognised appropriately.

Subsequent to 30 September 2020, the group has utilised short-term banking facilities to the value of ZAR750m. The facilities attract interest at a market-related interest rate. The facilities were utilised as part of the working capital cycle of the group. The group will initially measure the drawdowns at fair value and subsequently at amortised cost using the effective interest method. A repayment of ZAR250m was subsequently made on 20 October 2020.

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 condensed consolidated interim financial statements.

TO THE SHAREHOLDERS OF MULTICHOICE GROUP LIMITED

We have reviewed the condensed consolidated interim financial statements of MultiChoice Group Limited, which comprise the condensed consolidated statement of financial position as at 30 September 2020 and the related condensed consolidated income statement, condensed consolidated statements of comprehensive income, changes in equity and cash flows for the six-months then ended, and selected explanatory notes.

DIRECTORS’ RESPONSIBILITY FOR THE INTERIM FINANCIAL STATEMENTS

The directors are responsible for the preparation and presentation of these interim financial statements in accordance with the International Financial Reporting Standard, (IAS) 34 Interim Financial Reporting, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council and the requirements of the Companies Act of South Africa, and for such internal control as the directors determine is necessary to enable the preparation of interim financial statements that are free from material misstatement, whether due to fraud or error.

AUDITOR’S RESPONSIBILITY

Our responsibility is to express a conclusion on these interim financial statements. We conducted our review in accordance with International Standard on Review Engagements 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity. ISRE 2410 requires us to conclude whether anything has come to our attention that causes us to believe that the interim financial statements are not prepared in all material respects in accordance with the applicable financial reporting framework. This standard also requires us to comply with relevant ethical requirements.

A review of interim financial statements in accordance with ISRE 2410 is a limited assurance engagement. We perform procedures, primarily consisting of making inquiries of management and others within the entity, as appropriate, and applying analytical procedures, and evaluate the evidence obtained.

The procedures in a review are substantially less than and differ in nature from those performed in an audit conducted in accordance with International Standards on Auditing. Accordingly, we do not express an audit opinion on these interim financial statements.

CONCLUSION

Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed consolidated interim financial statements of MultiChoice Group Limited for the six months ended 30 September 2020 are not prepared, in all material respects, in accordance with the International Financial Reporting Standard, (IAS) 34 Interim Financial Reporting, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council and the requirements of the Companies Act of South Africa.

PricewaterhouseCoopers Inc.
Director: Brett Stephen Humphreys
Registered auditor
Johannesburg
12 November 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 period ended 30 September 2020. The following methodology was applied in calculating the non-IFRS performance measures:

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 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:

12.1 Key performance indicators as at 30 September

12.2 Group financials including segmental analysis

12.2.1 SEGMENTAL RESULTS

12.3 Reconciliation of headline earnings to core headline earnings

Core headline earnings exclude 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.