Frequently asked Questions: MultiChoice Group Listing
Why is Naspers unbundling the MultiChoice Group (MCG)?
- Naspers has the desire to become a global, 100% consumer internet company.
- They are less reliant on MCG and confident that MCG will prosper as a stand-alone entity.
- We share Naspers’ conviction and are excited about the opportunity to craft our own destiny.
- We have a strong pedigree in terms of track record, management team and in-country capabilities.
- We are well placed to capitalise on opportunities and generate great shareholder returns.
Why are you not using the opportunity to raise additional equity capital through an IPO? (Initial Public Offering)
- Our current business plan is fully-funded, and we did not see the need to raise equity capital at this time. That option remains open further down the line.
- We are also an ungeared operation, so may look to raise debt capital against robust cash flows, should the need arise, in order to avoid diluting our forthcoming shareholder base
Does MCG have a control structure?
- No, MCG has only one class of shares that is listed on the JSE. (Johannesburg Stock Exchange)
- However, in order to comply with the foreign ownership cap on our subscription broadcasting license in South Africa, foreign shareholder voting rights are capped at 20%.
How are you positioned to handle future headwinds as a stand-alone entity?
- We are disciplined in our approach when it comes to capital allocation.
- We have a strong balance sheet with no financial debt, which provides us with flexibility.
- We have learned valuable lessons from the past and are better positioned for the future.
What is MCG’s strategic objectives and longer-term vision?
- MCG aims to remain the leading video entertainment provider on the continent across all distribution platforms.
- We are pursuing a dual-growth strategy through our traditional pay-TV offering in the mid- and mass-markets and our Connected Video services as broadband affordability and prevalence improves.
- We expect a number of business models to be sustainable but will adapt our packages and services to remain relevant to shifting market demands.
- We continue to see content and the user experience as critical to retaining our market leadership and will persist with prioritising these aspects of our business going forward.
- For MCSA, we aim to serve and retain existing subscribers, continue to grow in the mid- and mass-market segments, and maintain stable margins and strong cash flows.
- For Rest of Africa, we continue to execute against our Value Strategy to drive subscriber growth and engagement with cost optimisation to return the business to sustainable profitability via scale and operating leverage.
What is MCG’s core investment case?
- MCG offers a unique combination of:
- strong cash generation in South Africa (and Irdeto);
- substantial growth opportunity in Rest of Africa and Connected Video; and
- significant balance sheet flexibility.
- The key pillars of our business are:
- Exceptional content offering
- Leading African video entertainment platform
- Large long-term growth opportunity
- World-class infrastructure and technology
- Pan-African scale and strong local capabilities
- Attractive financials, ungeared balance sheet, strong dividend
To what extent do OTT (Over The Top) services represent a meaningful threat and/or opportunity?
- Given changing consumer habits, Connected Video (OTT) represents one aspect of our dual-growth strategy.
- To position the business for the future, we are implementing a comprehensive solution, including DStv Now (live streaming and catch up) to complement our DTH (Direct-To-Home) services and Showmax to provide a complimentary/standalone SVOD (Subscription Video On Demand) service.
- MCG is well positioned to compete given its access to broad content (in-demand local content, live sport and leveraging Hollywood studio relationships); strong partnerships (telcos, distributors); well-developed payment solutions; competitive pricing; comprehensive coverage of connected consumer devices; and investment behind engineering capabilities and software development.
- High data costs are however impeding the uptake of OTT products in the short-term.
Is the MCSA business at risk given its decline in the Premium base?
- The MCSA business is mature, and growth is coming predominantly from our mass market.
- The Premium subscriber base has been declining by ~3% p.a. in recent years, mainly due to challenges around affordability because of a weaker economic climate.
- We expect the base to stabilise over time as the economy improves and are looking at tight cost controls in the meantime to ensure margin stability.
Can the Rest of Africa) business become profitable again?
- We believe in the attractive growth opportunity that the Rest of Africa business represents.
- We expect to return the business to profitability through a combination of subscriber growth (scale) and cost-controls over the medium term.
- The Rest of Africa business was profitable for many years at much lower scale (e.g. R1,5bn EBITDA in FY14 with 3m subs vs ~7m now).
- Macro and FX challenges of 2015/2016 had a massive negative impact, but highlighted areas for improvement in our market approach in terms of pricing and content tiering.
- We have revised our strategy and fundamentally restructured our service offerings and cost structure as part of our Value Strategy.
- We now have a pricing and content bouquet structure to support sustained growth.
Can you tell us more about your technology business, Irdeto?
- Irdeto is a profitable and cash-generative business, which produced US$232m of revenue in FY18.
- The business has more than 500 clients globally (e.g. MCG, Comcast, KPN, EA, Google, Apple etc.).
- Irdeto provides a critical support function to MCG as global leader in content, platform and software security.
- It is the leading player in its two main segments:
- Media Security: providing cutting-edge solutions for securing digital content and managing piracy
- Connected Industries: leveraging capabilities in connected transport and smart buildings
- Irdeto has been working with MCG for more than three decades and has been part of the group for more than two decades.
- Owning Irdeto gives the group two main advantages: (1) rapid deployment of technology developed for leading-edge global customers, and (2) better economics as Irdeto’s external revenues turn what would otherwise be a cost centre into a profit centre.
What is the group’s dividend policy?
- The group has a philosophy of returning excess cash to shareholders.
- It is the Board’s intention not to pay a dividend for FY19 but, subject to relevant factors and circumstances at the time, to declare a dividend of R2,5bn for FY20.
What are the details around the ‘flip-up” opportunity for Phuthuma Nathi (PN) investors?
- MCG is committed to provide an opportunity to PN investors to convert some of their PN holdings into MCG shares at a future date.
- The details are yet to be determined by the board and “flip-up” is only likely to incur once there is enough trading information available to determine a fair exchange ratio.