Video entertainment firm MultiChoice is facing “the most challenging operating conditions in almost 40 years" to generate desired returns.
This, as the company continues to lose subscribers, while its profit continues to plummet.
The DStv operator today announced its interim financial results for the six months ended 30 September, saying unprecedented foreign exchange volatility severely impacted the group’s results, while ongoing macro-economic challenges weighed on customer growth and moderated overall performance.
MultiChoice’s subscribers reduced by 800 000, while profit dwindled by close to R7 billion, the company reveals.
The results come as French-based media giant Canal+ is looking to take over the South African firm in a R30 billion deal.
Over the years, MultiChoice’s numbers have reduced due to pressure from global streaming services, such as Netflix, Disney+ and Amazon Prime.
Amid these circumstances, the company says it has been proactive in its focus to “right-size” the business for the current economic realities and industry changes.
It notes that although operating across Africa typically subjects the group to currency moves, abnormal currency weakness over the past 18 months reduced the group’s profit by close to R7 billion.
Combined with the impact of a weak macro environment on consumers’ disposable income and therefore on subscriber growth, it required the group to fundamentally adjust its cost base – which is exactly what has been done, says the video entertainment firm.
The normal cost savings programme was accelerated, resulting in permanent savings of R1.3 billion over the past six months and an increased target of R2.5 billion for the full year, it states.
Addressing technical insolvency
“We are making good progress in addressing the technical insolvency that resulted from non-cash accounting entries at the end of the last financial year,” says Calvo Mawela, MultiChoice Group CEO.
“We expect to return to a positive net equity position by the end of November this year, supported by a number of developments and initiatives. The group’s liquidity position remains strong, with over R10 billion in total available funds.”
The group is also adjusting to global pay-TV challenges as streaming services, the rise of social media and changing consumer preferences impact the traditional broadcast business.
Showmax, which reported 50% growth year-on-year (YOY) in its paying customer base, strategically positions the business to actively participate in the streaming revolution as it gains momentum across Africa, says the firm.
To create sufficient capacity and drive growth, the group stepped-up its investment in this business by an incremental R1.6 billion during the interim period.
“We have successfully been implementing our strategy over the past few years, achieving key milestones, such as our investment in KingMakers, returning the rest of Africa business to profitability in FY23 and FY24, concluding the Showmax partnership with Comcast and investing in Moment. While we’ve made huge inroads to reduce our cost base, there’s still more work to be done,” says Mawela.
“However, our focus extends beyond cost-efficiency – we are equally committed to growing the business. We remain committed to driving new revenue streams and see significant medium- to long-term opportunities in video entertainment, particularly in streaming, and in our adjacent new businesses.”
Meanwhile, the group reported strong momentum in its new products and services, which all delivered robust YOY revenue growth – DStv Stream (71%), DStv Internet (85%) and DStv Insurance (31%).
KingMakers reported a 27% increase in its online monthly active users in Nigeria and grew its revenue in naira by 53%, while newly-launched SuperSportBet is showing early traction in South Africa, the results show.
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.
“This reflects an improving sequential trend. On a YOY basis, the linear subscriber base declined by 11%, or 1.8 million subscribers, to 14.9 million active subscribers, impacted by the challenging macro-economic conditions that negatively impacted discretionary consumer spend."
Cost optimisation drive
Revenue increased by 4% YOY to R25.4 billion on an organic basis, due to disciplined inflationary pricing and revenue growth of new products.
On a reported basis, revenues declined by 10%, impacted by foreign exchange pressures on the rest of Africa business and a stronger rand against the US dollar, says MultiChoice.
It adds that the group’s ongoing cost optimisation drive delivered R1.3 billion in savings, and together with other improvements in the business, it resulted in a 33% increase in trading profit before incorporating the Showmax costs.
A R1.6 billion step-up in the investment behind Showmax to create capacity for growth trimmed the organic trading profit to R5 billion, a decline of 1% YOY.
Foreign exchange losses in the rest of Africa business amounting to R2.3 billion reduced reported trading profit to R2.7 billion.
Adjusted core headline earnings, the board’s measure of the underlying performance of the business, amounted to R7 million, impacted by foreign exchange losses and the investment in Showmax.
The group free cash flow remained positive at R6 million, with R5.7 billion retained in cash and cash equivalents.
“Despite the increase in net interest costs and a higher average debt balance, the group remains well-positioned to navigate current challenges with access to R4.4 billion in undrawn facilities,” says the company.