Release Date: November 13, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• MultiChoice Group Ltd (MCHOY) achieved permanent cost savings of 1.3 billion rands, with a target to increase this to 2.5 billion rands for the year.
• The company has more than 10 billion rands in total liquidity, ensuring a strong financial position.
• Showmax, the streaming service, saw a 30% increase in active paying subscribers since its relaunch.
• Kingmakers, a subsidiary, reported strong growth with a 60% increase in online revenue in Nigeria.
• The South African business maintained a trading profit margin of 31% despite challenges.

Negative Points

• MultiChoice Group Ltd (MCHOY) faced severe foreign exchange losses, particularly in Nigeria, impacting trading profit by 2.3 billion rands.
• Subscriber numbers declined by 11% year on year, mainly due to challenges in the rest of Africa.
• The company reported a trading loss of 300 million rands in the rest of Africa due to currency headwinds.
• Showmax incurred a trading loss of 2.4 billion rands due to increased content and platform costs.
• The rest of Africa's subscriber base saw a significant decline, with Nigeria and Zambia being major contributors.

Q & A Highlights

• Warning! GuruFocus has detected 7 Warning Signs with MCHOY.

Q: Could you remind us on the timeline for transponder lease renewals and when the related cost savings might begin to materialize? Are there any cost savings related to this in the second half that we should expect? A: The transponder lease renewals start in the second half of this financial year, but the first meaningful savings are expected in FY26. We have several transponder renewal contracts between now and FY27, and we expect the bulk of the savings to be realized over FY26, FY27, and FY28.

Q: With leverage currently at 1.9 times and trading profit typically lower in the second half, could leverage exceed two times by year-end? What are the debt covenants in place, and what might help offset the lower EBITDA to keep leverage below any covenant level? A: We are monitoring leverage closely and do not believe we will breach any bank covenants at year-end. The covenant with banks is set at 2.5 times. We are looking at various factors to maintain leverage within this limit, including accelerating cost savings and managing lease liabilities.

Q: Regarding cash burn in Showmax, are trading losses and cash outflows expected to increase in the second half? Do you anticipate this year to be the peak year for Showmax losses? A: This year is expected to be the peak year for Showmax investment. We are working on expanding payment channels and improving customer journeys with distribution partners. We recognize the need to reduce cash burn by the next financial year.

Q: What kind of cash flow are you expecting from Comcast to help fund the trading losses from Showmax in the near to medium term? A: Comcast, as a 30% shareholder, funds 30% of the obligations. The first half-year spend was 2.4 billion rands, and the second half is expected to be slightly higher due to seasonal acquisition costs. Comcast will cover 30% of the total funding requirement.

Q: Can you provide an update on the status of the Canal Plus transaction and the regulatory process? A: We filed jointly with Canal Plus to the South African Competition Commission on September 30, 2024. We are actively engaging with other regulatory bodies and expect the Competition Commission to make a recommendation to the Competition Tribunal. The timing is still early to predict, but we are in active discussions.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.