Multichoice Group Limited

Good day, ladies and gentlemen, and welcome to the Multi-Choice Group Financial Year 25 interim results call. All participants will be in listen-only mode. There will be an opportunity to ask questions later during the conference. You may also submit a question using the webcast platform. If you should need assistance during the call, please signal an operator by pressing star and then zero. Please note that this call is being recorded. I would now like to hand the conference over to Miloe Hoon. Please go ahead.

Thank you, Irene, and welcome, everybody. Thank you for joining our call today. I hope you've all received the details of our results, including today's presentation, by email or on our website. As a quick introduction, the multi-choice panel for today's session is our CEO, Calva Muehla, and our CFO, Tim Jacobs. While Byron Duplessis, our Deputy CFO, will be joining for the Q&A. So to get things going, let me hand you over to Calvo.

Good afternoon, everyone, and welcome to today's interim result presentation. Let's start by turning to slide two for some upfront comments. The past year and a half has been one of the most testing periods in our almost 40 years in Africa. Not only did we have to face the most severe foreign exchange environment in the group's history, but with most markets across our footprint still economically challenged, our year-on-year subscriber growth has also disappointed. Although some things are beyond our control, we did not let it detract from executing on our strategy, nor on our commitment to bring our customers the best video entertainment content. Circumstances have forced us to accelerate our normal cost savings program, resulting in permanent savings of 1.3 billion rands in our cost base. To generate the right returns, a core focus over the next few years will be to right-size the business for the current economic realities and ongoing industry challenges. In addition, and to support long-term growth, we will also continue to grow new revenue streams, which are all showing great traction already. Through our investment in Showmax, we will ensure that we are well positioned to participate in the streaming revolutions once it takes off at scale across Africa. We remain a growing concern with more than 10 billion rands in total liquidity. The negative equity position that resulted from non-cash accounting entries at the end has led to a lot of frustration and confusion in the market. We are glad to announce that there are a number of developments and initiatives that will resolve the negative equity position by the end of November this year. As the past six months have been like no other, I would like to take some time in my overview to focus on how we are adapting to changing global trends impacting pay TV operators like ourselves. In the operations sections thereafter, I'll discuss how we are executing on these business plans, after which Tim will take you through our interim financials in more detail and provide an outlook for the rest of the year. Globally, the pay TV industry is facing challenges from streaming services, the rise of social media and changing consumer preferences. Although satellite TV remains the cheapest way to broadcast rich media content across the African continent, this too will change in time. On slide five, we take a look at how the global video entertainment landscape is evolving. The chart on the left from Omdia's October 2024 report shows that pay TV subscribers and revenues have peaked globally, with subscriber growth mainly coming from online video. As a result, streaming revenues are rapidly catching up with that of traditional pay TV. On the African continent, however, online video still has some way to go. The chart on the right shows online video subscribers at only 5% of households, well below the 39% global average. Affordability and availability of suitable broadband from streaming remain a challenge, but things are changing. For us, it is not a case of if, but rather when streaming takes off. Through Showmax, we have positioned ourselves to participate in the strategic shift and the future growth of online video on the continent. In the meantime, our mix of traditional satellite and traditional paid TV services, combined with our streaming offering, puts us in the best position to continue to meet Africa's growing video entertainment needs. Moving to slide six. Facing a deadline in paid TV subscriptions and revenues due to code cutting, traditional broadcasters in developed markets had to adapt their business models. They did so by broadening and innovating their service offerings. Outside of pricing to support top-line growth, they launched paid-for and ad-supported streaming services, bundled services such as internet or mobile, and introduced value-added services such as gaming. We have also seen an increase in the streaming of sport content, especially on mobile, and several new partnerships have been announced. We have commented in the past on the benefit of being able to evaluate these global trends before we pursue them, which often allow us to avoid the pitfalls encountered by fast movers. Looking at what works globally, we have assembled and are also constantly evaluating a range of solutions to bundle content and products that allow our customers to stay within our platform while enjoying a broader range of services. Similar to global broadcasters, and in addition to offering our core video entertainment services, we have invested in gaming, launched GSCV Internet, relaunched Showmax to drive our streaming ambitions, and added the EPL and the current local PSL football leagues to our Showmax offering. Turning to slide seven, over the past few years, we have successfully been implementing our strategy of a broader service offering. Strategic milestones since 2020 include the investment in Keymakers, the conclusion of the Showmax partnership with Comcast, returning the rest of Africa business to profitability, and the investment last year in Moment. While adapting to change as planned, our financial performance over the past 18 months has been materially derailed by abnormal currency headwinds, particularly in Nigeria, our second largest market. Operating in Africa, we have always assumed some inflation-linked currency depreciation in our planning. However, recent currency weakness have been beyond anything we had anticipated. The extent of this currency knock is evident in the graph on this page. The black line shows our actual reported trade in profit over time. The blue dotted line reflects the results adjusted for a more normalized currency depreciation, and it shows what our numbers would have looked like had currencies depreciated in line with historic trends. After a steady start since listing, things changed materially last year, when the abnormal Forex impact trimmed our profits by 3.7 billion rand, with another 1.8 billion rands abnormal hit in this interim period. A situation like this, combined with the impact of a weak macroenvironment on consumers' disposable income, required us to fundamentally adjust our cost base, which is exactly what we did. On slide 8, the chart on the left shows how, after delivering cost savings of around R1 billion per year in the first few years since listing, We have ramped up permanent cost savings to over 3.2 billion rand over the past 18 months. And while we have made huge inroads to reduce our cost base, we still have some way to go to deliver the right returns going forward. We'll continue to make considered strategic trade-offs to right-size our business and have increased our cost savings target to at least 2.5 billion rands this year. But we cannot rely on cost cutting only to drive returns. We need to grow the business too. We are very happy that our investment in new opportunities continue to deliver strong growth. And as several of them are run by their own management teams, they cause little distraction for us in managing and innovating our core business. For example, Kingmakers continue to grow strongly. Not only have Betking increased its monthly active users in Nigeria by 49% over the past two years, but they also grew the Naira revenues by 86% over the same period. Moment's total payment volumes has grown materially in just six months, and it achieved gross profit in June, just 12 months after launch. The value of the business has already increased six-fold since our initial investment almost 18 months ago, representing a great return on our invested capital. And while we are pushing the business for future success by pursuing growth opportunities, we'll remain completely focused on what we do best. bringing the magic of video entertainment to millions of households across the continent. So let us now have a look in more detail at our operations. Slide 10 serves as a reminder of our strategy. As Africa's most loved storyteller, we cater for customers' entertainment needs in their homes and on the move. We continue to innovate, partner invest to grow from our core linear video entertainment business by developing and scaling adjacent streaming and interactive entertainment services. And true to our vision, we keep enriching the lives of millions of people through entertainment and technology. Turning to slide 11. Catering for our customers' needs mean we provide different technologies, price points and brands, But in the end, it is all about the content. Our core focus is to offer our customers the content that they love, local, international or sports, and to deliver it using the distribution technologies that they prefer, whether through satellites or terrestrial networks, online services or through connected set-top boxes. We price our products differently to cater for different levels of disposable income. And while historically our entertainment services were aimed at households, we are increasing our focus on the entertainment needs of individuals who are accessing our world of entertainment using their mobile devices. Content remains at the heart of what we do, but in the current environment, optimizing our content spend to ensure the best returns is also critically important. On slide 12, you'll see that despite the extra content costs incurred by newly launched Showmax, we have reduced our general entertainment content spend by 10% year-on-year. Our total content costs, which includes sport, as a percentage of revenues, compares favorably to our global peers. And although we are optimizing spend, we continue to license some of the best international content available, not only through our long-term content partners, but also through the recently renewed channel agreements with NBCUniversal, DreamWorks, and Zee. Moving to slide 13. Given the group's overarching focus on driving cost savings, we have had to carefully balance the need to invest in local content as a key differentiator. We enhanced cost efficiencies through technical content videoing and content sharing, as well as through ongoing channel optimization. This resulted in cost savings of 10% year-on-year. We remain the largest producer of original, high-quality content on the African continent, Over the past six months, we have produced 2,763 hours of local content, accounting for half of our general entertainment spend. This has allowed us to expand our local content library, which has been growing steadily over the past few years by 8% to more than 86,000 hours. Slide 14 reflects some sporting highlights. True to its reputation as one of the world's leading sport broadcasters, Supersport renewed or extended several popular sports rights and broadcast more than 10,000 live sports events over the past six months, an increase of 10% year on year. The total number of live sport hours broadcast at almost 22,000 hours represent a significant 22% increase year-on-year and confirm super sport status as the home of champions. We have delivered the most extensive Olympic Games broadcast globally during Paris 2024, and as a result, we enjoyed a 20% increase in unique viewers compared to Tokyo 2020. Other exciting sporting events over the past six months included Euro 2024 football, the ICC T20 Men's World Cup, and the exciting rugby championship, which once again culminated in a Springbok victory. Supersport Schools is another big success story, doubling its user base by crossing a milestone of 1 million registered users. It delivered over 35,000 hours of content, resulting in more than 1.2 billion minutes of content being viewed since the beginning of April this year. This interim period also saw some new Supersport innovations, such as brand new unplugged podcasts and the use of new technologies, including the specialized buggy cam camera and the very successful Superscreen format. An exciting new initiative was the launch of Supersport Experiences, offering bespoke sport experiences in partnership with DSCV Rewards. This includes early bird tickets to the Springboks Test Matches, select Premier League experiences, and for the fans, we have a F1 Abu Dhabi offering coming up soon. Turning to slide 15, streaming will play a critical role in the future of your entertainment. However, as it is impossible to perfectly time its takeoff on the African continent, we are investing in Showmax now to ensure we create capacity for growth. Following a successful relaunch in February, the focus of the Showmax team has shifted to expanding its content slate, bearing down distribution partnership, increasing payment channel integrations, and refining the go-to-market strategy. Showmax saw its active paying subscribers grow by 30% since relaunch, or 50% year-on-year, excluding the impact of the discontinued Showmax Pro and the Diaspora offerings. After the successful integration of Mpesa as a payment option, Showmax relaunched in Kenya in May, followed by a recent partnership with Safaricom. In South Africa, we successfully launched a distribution partnership with Capitec in August and added the current South African Premier Soccer League to our mobile-only EPL offering in September. In our mature South African business, we remain focused on driving subscriber retention and reconnections and on identifying pockets of growth while optimizing business processes and systems for improved customer experience and operating efficiencies. Over the past six months, we have made significant improvements to our DSCV Stream service. With the introduction of 10 new features, such as continue watching or watch from the start, we also pushed hard to reduce latency, which has improved to a leading global standard of only 9 seconds. Overall, platform stability has improved and customer satisfaction is up 9% so far this year. To drive retention, we ramped our DSTV rewards program with improved functionality and refreshed branding, as well as the introduction of new features such as DSTV Wheel and DSTV Coins. And to drive costs and operational efficiencies, we have continued to drive digital migration to our DSTV app to save call center costs and incorporated AI into different aspects of our businesses, such as creating the highlight clips on SuperSpot or to assist content discovery in streaming. Slide 17 provides an update on our South African customer base. We did line 5% year on year, but reflects an improving sequential trend. Sentiment and conditions in the South African market is starting to trend in the right direction due to six months of no low trading and with interest rates starting to come down. While this is definitely encouraging, it will take time for this positive development to play through. The pressure on consumers over the past few years have been most evident in our Compact and Compact Plus bookers that essentially serve middle-income households, even though Compact Plus is included in the premium segment for reporting purposes. The two charts on the left highlight just two of the many challenges. mid-market real personal income declined by 10% over the past two years, and debt installment as percentage of middle-class income rose to 79%. For example, due to hike in interest rate, the monthly installment for a 1.5 million rands loan taken out in mid-2021 will have increased by more than 4,000 rands a month, leaving very little money for discretionary products such as ours. As a result, we are constantly evaluating our content mix and value proposition across our service offering to ensure that we meet customer expectations. The graph on the right show the growth trends of the various segments of our customer base. The exercise base has seen an improved activity and reconnection rates, coinciding with the elimination of load shedding, and aided by additional sporting content such as La Liga and popular programming such as Wongile and the Laminis. Outside of the macro challenges, the Compact and Compact Plus bases were affected by the late start of this year's Premier Soccer League in South Africa, which was delayed until mid-September. In contrast, the Premium base, which excluded Compact Plus, traded broadly in line with expectations and is approaching an anticipated level of stability. The DSTV stream and extra stream at more normalized levels from the elevated base around last year's Rugby World Cup saw user activity responding well to the substantial upgrades to the user experience and user interface in August. On slide 18, we show the evolution of ARPU in the South African business. which has increased 3% year-on-year to 289, the first improvement in this metric since 2017. This positive trend was supported by pricing and good traction in DSTV internet subscriptions. Over the years, we have come to appreciate the benefits of a disciplined approach to pricing to offset the impact of inflation. In the short term, Price hikes typically result in revenue uplift, as the chart on this page shows, but also contributed to the change in volumes and mix, as some consumers need time to adjust their spending patterns. Over the long term, though, it drives the right outcomes. Incremental revenues from our internet insurance businesses contributed meaningfully to offset the impact of lower video subscription revenues. The DHCV internet customer base almost doubled again year on year, driving an additional 100 million rands in revenues. Although GSTV insurance policies did line slightly on elevated consumer pressures in the mid-market, an improved product mix due to the introduction of the device care plan resulted in a 31% year-on-year increase in insurance revenues. Turning to slide 19, our business and the rest of Africa have been facing multiple challenges across several markets since last year. And unfortunately, these trends have not yet abated. After a period of relative stability, power issues are again preventing customers from accessing our services. In Nigeria, the national grid has already collapsed six times this year. Zambia is dealing with its worst drought in 20 years, causing businesses and households to be without hydro-powered electricity for more than 20 hours a day. And as the regional drought in Southern Africa continues, we are now also seeing Zimbabwe battling power disruptions. In Nigeria specifically, fuel scarcity and the removal of fuel subsidy drove up transport costs, with rising food prices and significantly reduced economic activity the indirect result. Another major challenge for the business has been severe currency weakness in many of the largest markets. Not only did this affect our financials, but it also contributed to rampant deflation. All these challenges have had a very negative impact on discretionary spend and the ability of our customers to subscribe to our services. Although many of them have decoders in their homes, they simply could not afford to switch them on. Slide 20 provides an update on our Rest of Africa subscriber base. While the Rest of Africa business saw a drop of more than 800,000 subscribers in the second half of FY24, the pressure started to ease in the second half of the reporting period. As a result, we saw a substantial slowdown in the attrition rate to 7%. Of the roughly 600,000 customers that we lost over the past six months, 50% came from Zambia and 43% came from Nigeria, with the remaining markets holding up fairly well. As most of the customer losses came from the mass market, a combination of price increases and an improved customer mix provided some support, but due to low activity levels and severe currency weaknesses across many markets, blended ARPU in dollars dropped from $9 to $8. Moving to slide 21. Although Nigeria's large population and addressable market initially made it an attractive target market, the abnormal currency weakness experienced over the past two years has been problematic and it has eroded almost 5 billion rands of our group's trading profits since FY23. During this time, Nigeria accounted for 63% of the rest of Africa's subscriber losses, and its contribution to the rest of Africa's subscription revenues shrunk from 44% to 25%. As Nigeria remains a meaningful business, it is important that we mitigate its impact on the broader group. Some of the key actions we have taken to date, including pushing through price increase in line with inflation to counter exchange rate movements, renegotiating content deals where possible, restructuring select buke to driver pool, optimizing the DTT network, and pushing hard on anti-piracy efforts and engaging local authorities to assist us in this regard. Turning to slide 22, IDETO delivered an encouraging improvement in its external business underpinned by a key customer win in the Asian region and combined with additional managed services provided to a large customer in Australasia. IDETO experience? Our advanced new video streaming aggregation platform is gaining good traction and has won the streaming innovation of the year category at the recent industry event. while IDETO's anti-piracy services won the 2024 Cybersecurity Excellence Award, its second award of this nature. The business is now also providing services to secure routers for Deutsche Telekom through its keys and credential solution, while Denebo is gaining further traction in the gaming industry after unveiling its innovative solution to instantly identify the use of bots. Kingmakers continues to gain strong traction in Nigeria and is enjoying early signs of success in South Africa. On slide 23, we look at some key performance indicators. The two graphs on the top left reflect the strong growth momentum in Nigeria with monthly active online users up a further 27% year-on-year. Online revenue grew 60% year-on-year in Naira, underpinned by a much larger customer base and a very strong performance in the visuals and gaming segment. In South Africa, a recent industry report highlighted that the sport betting, which is already estimated to be R36 billion industry, had grown 51% over the past year. Given this upward momentum, we are very happy that SuperSportBet reported a tenfold increase in net gaming revenues over the past nine months. Other operational highlights include the very successful launch of Aviator in Nigeria and South Africa, while the new online casino offering in Nigeria is also doing well. The ongoing optimization of the agency network has resulted in enhanced overall returns. In terms of its financial performance, Kingmakers grew its Naira revenues by 53% over the reporting period. Due to the weak Naira, this translated into $48 million. Although the Nigerian business remains profitable, the group reported an EBITDA loss due to head office expenses and the startup costs in South Africa. It retains a healthy $96 million in cash to fund its operations. That concludes my section of today's presentation. I would now like to hand over to Tim for the financial update.