Video entertainment group MultiChoice is pinning its hopes on its multibillion-rand deal to sell 60% of its insurance business to Sanlam, to get out of the murky waters of technical insolvency.
This is according to MultiChoice group CFO Tim Jacobs, speaking yesterday during an interview with ITWeb after the company announced its interim financial results for the six months ended 30 September.
MultiChoice finds itself technically insolvent from non-cash accounting entries at the end of the last financial year, and is working to address this through the Sanlam transaction, among other initiatives.
In June, insurer Sanlam and MultiChoice entered into an agreement for Sanlam to acquire 60% of MultiChoice’s insurance business, NMS Insurance Services (NMSIS), as well as a long-term commercial arrangement to expand insurance and related financial service offerings to MultiChoice’s African subscriber base.
Under the deal, Sanlam will pay an upfront cash consideration of R1.2 billion to MultiChoice for its 60% stake and a potential performance-based cash earn-out of up to a maximum consideration of R1.5 billion, contingent upon the amount of gross written premium generated by NMSIS for the financial year ending 31 December 2026.
“Our equity numbers − in other words, equity minus liability at half-year − was minus R2.7 billion. That means that effectively our liabilities are more than our assets,” said Jacobs.
“We have started a process to find a 60% partner in our insurance business and identified Sanlam as that partner and we have been working on a deal with them for some time now.”
Last month, the Competition Commission gave the deal the green light.
“We expect that to close in November, and the only condition left for that deal to go through is the Prudential Authority and we have high confidence that the deal is imminent. We are expecting their reply any day now.
“When that happens, the profit that we will book from the sale of that business, which we started over 20 years ago, is between R2.3 billion and R2.6 billion. That alone is going to get us some equity.”
Currency impact
He adds that MultiChoice has seen a number of opportunities in the second half of the year, as it believes currency impacts will be as aggressive in terms of impacting equity.
“As an example, cash remittances out of Nigeria in the first half of the year were R23 million, and last year, they were R410 million. The parallel rates and official rates were much wider than they are this year. This year, they stayed much narrower, and as we go into the second half of the year, that is a positive movement for us that will help our equity position.”
Jacobs said at the end of last year, the company warned the market about weakening currencies, as well as a weak macro environment, with customers under a lot of pressure.
“We felt worried that this was going to carry on into the first half of this year. We then decided to pivot our short-term tactics to focus on profitability, cash flow, and to protect the business while we were going through this incredibly volatile period of time.
“On the trading profit aspect, we think we more than delivered on that mandate. By way of example, in the first half of last year, we had R5 billion trading profit, and this year, we saw some improvements in our core business through price increases and cost-cutting. We delivered a 32% improvement in our core trading results to R6.6 billion and that’s excluding the investment in Showmax.”
From that point onwards, he added, it got a little bit ugly because it was then hit with a R2.3 billion foreign exchange loss, which resulted in a trading loss decline of 46% to R2.7 billion for the half.
“There is nothing much we can do about the currencies, but what we can do is to manage the cost base because we delivered almost R1.4 billion worth of cost savings − that’s 5.8% of the cost base in the first six months.
“We were very pleased with that and we have a clear objective to deliver at least R2.5 billion savings for the full year.”
Dwindling subscribers
Those were the positives, he said, while subscriber numbers disappointed. According to MultiChoice, the pressure on the linear pay-TV subscriber base was lower than the previous six months, reflecting a 5% decline (800 000) compared to 6% reported (1 million) in 2H FY24.
On a year-on-year basis, the linear subscriber base declined by 11%, or 1.8 million subscribers, to 14.9 million active subscribers.
Jacobs explained that in the rest of Africa, MultiChoice saw a material 15% decline in subscriber numbers, largely attributable to Nigeria and Zambia, together representing 86% of the loss of subscribers.
“Zambia has a problem of load-shedding, which is running at about 20 hours a day. Nigeria is under a whole lot of financial pressure. Their power grid had complete failure six times this year. They’ve got inflation that is running over 30% for the whole year; they’ve got fuel prices that have skyrocketed.
Jacobs stated SA has been a mixed bag. “The real challenge we are seeing in SA is with the mid-market on the Compact bouquet and the Compact Plus bouquet that forms part of the premium bouquet.
“This is where we see the most indebted part of the South African economy sitting. If we look at sequential performance in SA, in the second half of last year, the subscriber base declined by 6% and in the first half of this year, it declined by 5%. Although we are still losing subscribers, we are seeing the rate of churn is slowing down.”
He pointed out that in SA, the premium bouquet only declined by 2% − the lowest decrease the company has seen in many years. “Normally, that sits between 4% and 6% on an annualised basis.
“In SA, for the first time in seven years, we have actually seen an improvement in our output because we were able to put through a 5.9% inflationary price increase, and that has gone a long way in trying to offset some of the volume pressures that we are seeing in the business.”
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