While facing pressure from over-the-top (OTT) players, MultiChoice Group’s (MCG’s) revenue has jumped to R25.7 billion.
The pay-TV operator today announced its results for the six-months ended 30 September 2019 (1H FY20).
The group continues to drive subscriber growth and added 1.2 million 90-day active subscribers, representing 7% growth year-on-year (YoY), it says.
This took the overall subscriber base to 18.9 million households, split between 8.2 million households in SA and 10.7 million households in the rest of Africa (RoA).
The company notes that revenue was up 4% to R25.7 billion, despite tough comparisons (specific one-off events boosted the prior reporting period) and a strategic decision not to increase Premium prices in SA.
A R700 million (R1.2 billion organic) reduction in losses in RoA underpinned MCG’s trading profit improvement, which rose 22% to R4.8 billion.
MultiChoice’s strong results after the company listed on the Johannesburg Stock Exchange in February this year.
Before the listing MultiChoice had expressed fears that OTT such as Netflix players were eating into its profits.
Core headline earnings, the board’s measure of sustainable business performance, was up 24% on the prior period at R1.9 billion, despite the 5% additional share allocation in MultiChoice South Africa (MCSA) gifted to Phuthuma Nathi (PN) shareholders in March 2019.
Excluding this once-off change, MCG says core headline earnings would have grown 37% YoY on a like-for-like basis.
“We are pleased with our solid financial performance and our ability to navigate a very challenging economic climate,” says Calvo Mawela, CEO.
“The group’s cost saving objectives for FY20 remain on track with R700 million in costs eliminated from the base during 1H FY20, mainly as a result of the continued shift in spend towards more cost-effective local content, innovation in customer care, contract renegotiations, hardware savings and the introduction of platform efficiencies.”
Local content
The group says it continued its strategic focus on investment into local content, increasing the number of hours produced by 12% YoY.
The group achieved its target of generating positive operating leverage by delivering revenue growth of 4% (3% organic) and containing costs at the same level as the prior period (-3% organic).
It says this strong performance was largely as a result of the early implementation of cost saving initiatives to ensure maximum benefits through the financial year.
Capital expenditure (capex) of R300 million was in line with the prior period and the cash conversion ratio (EBITDA-capex/EBITDA) remained positive at 96%, says MCG.
As one of the largest taxpayers in Africa, MCG paid direct cash taxes of R1.9 billion, the company says.
It adds that consolidated free cash flow of R2.4 billion was up 32% compared to the prior period due to an improvement in the trading result from the RoA and a lower investment in set-top boxes.
The group’s balance sheet remains strong with R9.9 billion in net assets. This includes R6.9 billion of cash and cash equivalents, after settling the R1.5 billion dividend to PN, and utilising R0.8 billion for share buybacks.
“We are also on track to deliver on our R2.5 billion dividend commitment for FY20,” says Mawela.
The group says it remains fully dedicated to broad-based black economic empowerment (B-BBEE) and transformation.
In line with its prior commitment, MCG’s offer to PN shareholders to exchange up to 20% of their PN shares for MCG shares closed on 28 October.
It resulted in PN shareholders in both entities (PN1 and PN2) exchanging a total of 3 840 344 shares for a total of 3 675 210 MCG shares.
Following the implementation of the share exchange, MCG’s effective stake in MCSA has increased from 75% to 76.4%, with PN owning the rest.
SA business
According to MultiChoice, the SA business delivered solid results, reporting subscriber growth of 7% YoY or 600 000 subscribers on a 90-day active basis.
Revenue growth of 2% (2% organic) to R17 billion was muted as healthy subscriber growth in the mass market was negated due to no price increase being implemented on the Premium bouquet, which was well-received and resulted in the stabilisation of the base at 2019 year-end levels.
Trading profit was slightly down from the prior period at R5.2 billion, predominantly due to the cost impact of broadcasting three major sport events in the reporting period and once-off restructuring costs in the customer care division, the company explains.
Despite these costs, the company says the trading margin remained relatively stable at 30%. The business remains focused on growth, retention and efficiencies to support margins.
Connected video
Connected video users on both the DStv Now and Showmax platforms continue to grow as online consumption increases, the company says.
Further improvements have been made to the user interface and the content slate, including simulcasts with pay-TV, investment in additional original local content and the procurement of content for the connected video platforms.
The group also started trialling sport on Showmax to better understand appetite for this offering and to give connected video subscribers a taste of the SuperSport experience.
The RoA business grew the 90-day active subscriber base by 7% YoY or 700 000 subscribers.
Growth was affected by non-recurring sport events in the prior year and some country-specific issues. These include 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.
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