In a year that required careful navigation of COVID-19 challenges, MultiChoice Group (MCG), Africa’s leading video entertainment company, added 1.4m 90-day active subscribers to close the year ended 31 March 2021 (FY21) on 20.9m subscribers.
The group subscribers split is between 8.9m in South Africa and 11.9m in the Rest of Africa (RoA). This represents an accelerated 7% growth year-on-year (YoY), driven by heightened consumer demand for video entertainment products, continued penetration of the mass market and an easing of electricity shortages in southern Africa.
Further analysis by Brand Spur revealed that Multichoice’s revenue was resilient, growing by 4% (4% organic) to R53.4bn. This performance, coupled with a firm focus on cost containment and a R1.5bn (R2.7bn organic) reduction in trading losses in the Rest of Africa translated into a 28% (44% organic) increase in trading profit to R10.3bn.
Multichoice Core headline earnings, the board’s measure of sustainable performance, was up a meaningful 32% YoY to R3.3bn, while free cash flow grew a solid 10% to R5.7bn.
The group reported R8.5bn in cash and cash equivalents at year-end. Combined with R4bn in undrawn facilities, this provides R12.5bn in financial flexibility to support dividends and growth initiatives.
“The COVID-19 pandemic taught us more about the art of the possible,” says Calvo Mawela, Chief Executive Officer. “We started the year confronted with severe disruptions to our programming schedules, bleak macro-economic forecasts for many of our markets and sharply weaker currencies. In the face of these challenges, our teams rallied together – this helped us deliver on all our key performance metrics and provide more value to our shareholders by declaring a R2.5bn dividend.”
The group continued its differentiation strategy by stepping up its investment in local content. Despite production stoppages and travel restrictions brought about by the pandemic, it produced 19% more content than last year – a sizeable 4 567 hours. As a result, the total local content library now exceeds 62 000 hours. Some 42% of the group’s general entertainment spend was on local content and it remains on track to reach its target of 45% by FY22.
To help manage US dollar-based costs, two major international content agreements (and several smaller ones) were renegotiated into South African rand (ZAR). The group also launched 11 new local language channels across sub-Saharan Africa, completed five new co- productions with global content producers and sold 16 of its series to international buyers.
In addition to compelling local stories, MCG continues to broadcast the best of sport. This year, the group renewed the rights to the English Premier League and UEFA Champions League and also secured broadcasting rights to the FIFA World Cup 2022 in Qatar. On the international content front, it maintains mutually beneficial relationships with its studio partners, and has successfully added access to Netflix, Amazon Prime and more recently YouTube on its DStv Explora Ultra decoder.
In addition to the new products and services launched during the first half of the year (including Showmax Pro, DStv Communities, DStv Rewards and ADD Movies), the Group expanded its financial services portfolio, going beyond offering pure decoder insurance to include funeral cover, subscription waiver and debt waiver products.
“We have a highly engaged base of 20.9m subscribers and with an average of five people per household, this helps us reach approximately 100 million people. We see great opportunity to keep enriching the lives of our customers by expanding our entertainment ecosystem with innovative offerings that will also enhance our revenue prospects,” commented Mawela.
The Group made a 20% investment in pan-African sports betting business BetKing and subsequent to year end has announced its intention to increase this investment to 49%. This investment will increase the group’s shareholding in BetKing from 20% to 49% for a consideration of $282m (R4.0bn). This investment offer remains subject to preconditions being met.
FINANCIAL REVIEW
Both advertising and commercial subscription revenues were significantly impacted by COVID-19. Advertising revenues were down 34% YoY (R0.6bn) at the interim stage but recovered well in the second half as COVID restrictions eased, ending 11% down YoY at R2.8bn.
Similarly, commercial subscription revenues started to recover in the latter part of the financial year but finished 35% lower than the prior year. The hospitality industry is expected to take some time to return to normal trading.
The group achieved its target of generating positive operating leverage by keeping revenue growth ahead of the growth in costs. Organic revenue growth of 4% combined with a 3% organic reduction in operating costs resulted in improved operating leverage of 7%, 2 percentage points higher than the prior year.
A focus on tight cost controls and the early implementation of cost cutting initiatives underpinned an expansion in the group’s trading margin from 16% to 19%. Cost savings amounted to R1.5bn for the year, exceeding the group’s stretch target of R1.4bn. Savings were largely fixed in nature with more than half relating to content and the balance to a broad range of initiatives such as sales and marketing and lower decoder unit costs.
Capital expenditure (capex) of R1.6bn was R0.7bn up on the prior year, primarily due to a multi-year investment programme to upgrade the group’s customer service, billing and data capabilities. As one of the largest taxpayers in Africa, MCG paid direct cash taxes of R4.1bn, slightly more than the prior year driven by higher group profitability.
The strength of the balance sheet remains critically important given the uncertain longer- term economic impact of COVID-19 and funding requirements for the Rest of Africa, which is also impacted by liquidity constraints in Nigeria. Of the reported cash balance of R8.5bn, holdings of R2.5bn (FY20: R1.7bn) in Nigeria, Angola and Zimbabwe remain exposed to weaker currencies.
To improve the group cost of capital and reinforce the statement of financial position, an amortising working capital loan of R1.5bn was concluded in November 2020. The loan has a three-year term and bears interest at an all-in fixed rate of 5.75%.
