MultiChoice Group Limited (MCG) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the MultiChoice Group FY '21 Results Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Meloy Horn, Head of Investor Relations. Please go ahead.

Thank you, Chris. Good morning, and good afternoon, everyone, and thank you for joining us today. Our results for the year ended 31 March 2020, were released yesterday. If you are registered on our database, you would have received our investor e-mail with all the relevant information. You can view today's presentation on the webcast and for those that dialed in, the slides are available in the Investors section of our website and their latest results. Before we start our presentation, let me quickly introduce the speakers for today. Calvo Mawela, our CEO, will present the highlights and strategy and will also provide you with an operational update. Thereafter, Tim Jacobs, our CFO, will discuss the financials before Calvo will conclude with comments on our outlook for the year ahead. We will then take some questions. So let me hand you over to Calvo to get us going.

Thank you, Meloy. Good day, everyone, and welcome to our results call. To start today's presentation, I would like you to turn to Slide 3. This slide shows a brief summary of our performance over the past year. In a year that required careful navigation of COVID-19 challenges, our results reflect a strong performance, underpinned by solid execution and tight cost controls. The COVID-19 pandemic, while bringing many challenges to all and great loss to many, taught us more about the art of the possible. Our teams rally not only to keep the lights on, but to excel, drive innovation and delight our customers. We achieved 7% subscriber growth in our traditional linear pay-TV business, and our services now reached 20.9 million households across the continent. This makes us 1 of the top 10 linear pay-TV companies globally outside of China. Our OTT user base increased by a pleasing 39% year-on-year. We delivered solid financial results. Revenue growth accelerated to 4%, while trading profit was up 28%. Core headline earnings increased by a healthy 32% and free cash flow were up a solid 10% from the prior year. True to our reputation as Africa's most live storyteller, we produced almost 4,600 hours of local content. This is a remarkable increase of 19% year-on-year, despite disrupted production in the early days of COVID-19. Our forecast on managing costs continues, and we moved early to offset COVID-19-related prices. We delivered another ZAR 1.5 billion in cost savings and generated healthy operating leverage of 7%. Losses in the Rest of Africa narrowed by ZAR 1.5 billion, and the business retained momentum in moving towards profitability. The year saw us launching several innovative new products and services, and we secured some popular football rights. We also continue to enhance our ecosystem, specifically by expanding into the high-growth area of sport betting through our investment in BetKing. In October last year, we acquired an initial 20% stake for $81 million. Today, we announced our intention to increase our stake in the fast-growing business to 49% for an additional $282 million, which will be funded by debt. We'll comment in more detail on all of this later in the deck, as I'd first like to spend a few minutes talking to you about our strategy. Turning to Slide 5. We show our multipronged approach to growth. The linear pay-TV market remains a large and attractive growth opportunity for us. Penetration in sub-Saharan Africa is still relatively low, and satellite remains the cheapest way of distributing long-form video content to the product segment of the market. In addition, as connectivity bottlenecks continue to improve, we expect the addressable market in OTT to grow quickly, albeit of a low starting base. Our aim is to further develop our world-class OTT platform and to grow with this market. We will also continue to look for select opportunities in adjacent areas to our core business. This will allow us to further expand our ecosystem, thereby enhancing our customers' experience and at the same time, growing our revenues. A key underpin to expanding our ecosystem is our ability to leverage our scale and reach, as reflected on Slide 6. We currently reach approximately 21 million households. Given an average of about 5 people per household in our markets, that implies that we currently reach approximately 100 million people across the continent. We operate in 50 countries through 4 platforms, namely DStv, GOtv, Showmax and our many digital properties, which include our content website, such as M-Net and Africa Magic, our social media presence as well as our dedicated apps for the lives of SuperSport. Leveraging this scale and reach, we aim to further expand our ecosystem by innovating to build our next-generation of leading products and services by partnering with the best-in-class content and technical operations to deliver an exceptional consumer experience and by investing in targeted and complementary business opportunities to enhance our portfolio and generate financial returns. We believe this approach supports our ambition to provide a wider array of entertainment options and value-added services to our customers while generating additional revenue and creating value for our stakeholders. During the past year, we have been quite active in this regard. Following the bump sets of new products and services release announced in August 2020, we added access to Amazon's Prime Video via our Explora Ultra platform this January. More recently, we concluded a distribution agreement with YouTube, and we plan to add more third-party video-on-demand services in time. Given our highly engaged subscriber base and established billion relationship with our customers, we have been rolling out ancillary financial services on a targeted basis. We expanded our portfolio beyond pure decoder insurance to include funeral cover, subscription waiver and debt waiver products. These services are a need expansion of our value proposition to consumers and are ultimately aimed at helping us to improve our customers' lives while managing our ARPU and churn profiles. Following on our investment in BetKing, we are also in the process of exploring avenues for closer collaboration. We are very pleased with our momentum. On Slide 7, we show how we have delivered against all our strategic pillars this year. We aim to lead in content, differentiating in local and spot and managed to increase our local content production and successfully renewed popular spot broadcasting rights. We aim to expand our ecosystem and launch several new products or services and invested in BetKing. We aim to deliver our customer growth and achieve this in terms of linear subscribers and OTT user growth. Through Irdeto, we are pursuing global digital leadership and secured several new customer wins. And finally, we aim to sustain our operational efficiencies. This year, we achieved a fresh target of ZAR 1.5 billion in cost savings, well ahead of our normal ZAR 1 billion targets. So with this strategic context, let's move on to the operational update. Kindly turn to Slide 9, where I will share some of our content highlights. We start with local content, a key differentiator in our service offering. Demand for local content and channels continues to grow, and it enjoys disproportionately more viewing time compared to the broadcast minutes supplied, as reflected in the graph. FY '21 saw us producing 4,567 hours of local content. This is a remarkable 19% increase from last year. This is despite COVID-19 lockdowns, resulting in production stoppages and ongoing travel restrictions. A ramp-up on production in the second half of the year has ensured that we have enough content available in the event of another hard lockdown. Our slate of local scripted series included 43 dramas, 18 committees and 29 telenovelas, which was 55% more than last year and compares favorably to our international peers. 42% of our general entertainment spend during this period was on local content. This brings us closer to the 45% target for financial year 2023. There were many highlights during the year, including the launch of dedicated local content channels in Ghana and Ethiopia; and the launch of HONEY, the first pan-African lifestyle channel. We also completed 5 core productions and have another 3 in the pipeline, including a second season of the successful Crime and Justice, our first Kenyan co-production with Canal+. We see significant benefit in the coproduction business model as it supports high-quality content at a shared cost. Testaments to its quality, our content is gaining momentum in the international market. We secured distribution agreements for 16 series, representing 35 seasons over the course of the year. This includes sales to Canal+ and HBO. Now moving to Slide 10. The breadth of our sporting offering is evident from the 9,800 live events that we broadcast this year. This is despite the impact of COVID-19 on live sports. 500 of these events, we have produced ourselves. At the interim stage, SuperSport announced the host of new developments and continue to build this over the remainder of the year. The replacement of the channel number with a thematic channel offering has proved popular with customers and has driven a 24% increase in average time spent watching sport. During the year, we renewed the broadcasting rights for the English Premier League and the UEFA Champions League. We are also excited to have secured exclusive rights to the 2022 FIFA World Cup in Qatar. Looking forward, we can expect a normal sporting year ahead. COVID-19 caused several key events to shift into 2022, including the Olympics, the Euro Football Tournament, AFCON and the British & Irish Lions rugby tour to South Africa. SuperSport will also be looking to produce more documentary series on the back of the success of Chasing the Sun. And through our investment in SuperSport schools, we will be bringing school sports to the support as a whole. On the international content front, we have now integrated Netflix, Amazon Prime and YouTube into our platform. In this way, we can offer customers convenient access to a wider range of international content to suit their unique needs. We continue to hold strong relationship with many studios, producers and independent filmmakers, all of which give us abundant access to fresh content. Lastly, it is worth highlighting our approach to foreign currency content costs as we committed to reducing our currency exposure by renegotiating our supplier contracts into rents where possible. In addition to the 2 major studio deals we announced at our interim results, we have renegotiated several of our smaller deals wholly or partially into rents. Where this is not possible, we sometimes look to negotiate a sharing of currency risk to the extent that currency depreciation exceeds any price increases we have implemented. This has been successfully achieved in our Angolan and Mozambiquan markets. In other cases, we negotiate the sharing of hedging costs with our suppliers, and we recently signed such a deal with one of our major studios. It should be noted that all our foreign content agreements have some form of foreign currency protection clause, which allows for discounts should certain benchmark exchange rates derisk. On Slide 11, we provide some key operational details on our South African business. Despite a tough consumer environment, our products continue to be desirable, and we onboarded the second highest number of new subscribers in our history. Growth was yet, again, driven by the mass market, despite a modest price increase in April. The Compact segment also saw some growth, invigorated by the decision to keep price stable and comparing local content rate. Gomora, for example, has driven 140% increase in viewership compared to the same time slot last year. The ongoing growth in the middle and mass market segment has resulting in gradual shift in revenue contribution away from premium. This aligns with our middle and mass market focus. At the interim stage, we announced the launch of several new products and services such as DStv Rewards, Add Movies and DStv Communities as important tools to improve retention and ARPU. While it's still early days, we are happy with the progress made with uptake exceeding our internal targets. Another retention tool, our 12- and 24-month subscription contracts, are also doing well. Although not often talked about, we have a healthy and sizable decoder insurance business of more than 2 million customers. As mentioned in my strategic comments, we have expanded our offering by launching 3 new insurance products, namely funeral cover, a subscription waiver and a debt waiver. This year has also been characterized by ongoing digitalization. We have a fully digitalized ecosystem, meaning that a customer can join, watch, pay, get help and get rewarded without a single human interaction. Usage on our digital platforms, including self-service and digital payments, are at an all-time high. At the same time, our call center employees have continued to maintain and grow customer satisfaction while working from home and have begun to take on more revenue-generating activities. Slide 12 reflects the key performance metrics for the South African business. We are pleased to grow our subscriber base by more than 0.5 million subscribers, despite having to contend with COVID-19 challenges and the tough macro environment. As mentioned, our middle and mass market segments performed well as consumers prioritized video services during the lockdown. But affordability was a challenge for some of our premium customers, resulting in a decline of 8% year-on-year. The lower average premium base exacerbated by a cancellation of live sporting events during the year offset some of the ARPU gains that were made in the mass segment through price increases and upgrades within the segment. Upselling into higher bouquets to drive ARPU remains a key long-term strategy for us. This, together with lower commercial subscription revenue during COVID-19 and the regulated close of the hospitality sector, resulted in overall ARPU decreasing by 4%. Customer active days was up 9 days year-on-year. Although the lockdowns had some positive impact, this is a significant achievement considering the challenges faced and testament to our ongoing efforts to retain existing customers and activate dormant ones through targeted campaigns and initiatives such as DStv Rewards. Now turning to Slide 13. Our Rest of Africa team delivered a strong performance with the DTT business turning profitable this year. Despite a tough operating environment, we added almost 850,000 subscribers to end the year on 11.9 million subscribers. We also delivered our strongest festive season growth ever by focusing on subscriber acquisitions, recording actions and upgrades while also reducing dormancy rates. Some of the key strategic initiatives that underpin the team's efforts included targeted campaigns to support subscriber activity and upgrades, our regionalization strategy to support sales and distribution, our ongoing investment in local content to support our value proposition and our focus on digital self-service enablement and digital payment to support customer experience and empowerment. Although our Rest of Africa markets are often largely cash-based economies at various stages of mobile Internet adoption, we are pushing hard on digital enablement, given the benefits to both consumer and our business. Online payments are now available in most of our markets, while digital help interactions now represent most of our total customer interaction. Slide 14 provides some insight into a few of our key focus markets. Currency and commodity price volatility, along with rising inflation, especially in terms of food prices featured in several markets and compounded the challenge imposed by COVID-19. Nigeria maintained its momentum from interims and grew its customer base 9% year-on-year. This growth, along with price increases, our new localized bouquets and an ongoing focus on costs, helped this market to deliver a strong performance for the year. U.S. dollar liquidity remains a challenge. But a focused effort from our Nigerian and treasury teams allowed us to reduce our illiquid cash balance to $156 million at year-end. Our East African markets are particularly competitive, especially in the lower end of the mass market where customers tend to pay less than $2 per month for video entertainment. Given this dynamic, Kenya reported flat overall subscriber growth, but we are very pleased that our DTH base grew 10% year-on-year. Zambia's power crisis is somewhat in the second half, and copper prices seem to be rising. But the macro environment is still under pressure as our government finances. Nonetheless, this market managed to deliver 4% subscriber growth for the year. The Angolan market continued to experience economic challenges. Given fair price increases in FY '21 to offset ongoing currency depreciation, our team did well to restrict subscriber losses to just 5%. As flagged at interims, we have refocused our Ethiopian business with a more localized strategy. This includes dedicated local channels and content, our exclusive broadcast of the English -- of the Ethiopian Premier League and local currency payments. Our revised approach helped us to more than double our subscriber base year-on-year. We continue to monitor the political crisis in the country's northern regions and will adjust our business plans accordingly. Slide 15 provides a summary view of the operating performance of our Rest of Africa business. We ended the year on 11.9 million subscribers, with full year growth of 8%, representing an acceleration from the 6% reported at the interim stage. Our underlying growth trends per tier are somewhat distorted by the prior year's initiatives to incentivize subscribers to upgrade. Adjusting for this, we show a more normalized view in the middle of the left-hand graph, with the premium segment down 10% year-on-year, mainly due to affordability constraints in a difficult economic climate. The mass market reflects a steady growth with our mid market segment delivering an impressive 31% year-on-year growth, benefiting from our investment in local content and the return of soccer as well as our retention and upgrade campaigns, which drove an increase in activity levels of 3 days. Most of the inflation price increases in our Rest of African markets were at play by September, approaching revenue growth into the second half. We increased prices by a weighted average of 7% for the year or 16% if we incorporate the impact of the migration to new localized bouquets in Nigeria. Blended ARPU was up 5% year-on-year in rent terms, reflecting a weaker rand as well as healthy traction of the higher price Family and GOtv Max bouquets. Now turning to Slide 16. Our connected video business, which provides streaming services under the Showmax and DStv brands, continues to drive growth in an early stage market. We performed well against our strategic objectives of user growth, viewing time and growth in play events and significantly increase our Showmax paying subscriber base year-on-year. We successfully rolled out a to bill functionality in other 8 key markets across Africa. We now have 11 markets with seamless integration of Showmax in our DStv Systems. This will allow us to better penetrate our Rest of Africa pay-TV base, in particular, the more than 2 million subscribers in the premium and middle segments. It will also improve retention of the linear pay-TV base. As a uniquely African streaming service, local content is a strategic differentiator. We are ramping up Showmax original and first on Showmax series on the platform, while also leveraging the content assets of the product group. This strategy is working as our local content productions are proving to be the most popular and most wise, with the share of viewership geared towards local content increasing substantially year-on-year. Slide 17 provides an update on Irdeto, our digital platform security business. Like the rest of our operations, Irdeto has had to navigate some COVID-related challenges as well as supply chain disruption from global silicon chip shortage. As always though, the team has delivered a solid performance regardless of circumstance, while continuing to position the business to grow through ongoing innovation. The gaming segment, Denuvo, rolled out its anti-cheat services to mobile gaming platforms in the first half and to important PC and console gaming platforms in the second half through Steamworks and Sony's PlayStation 5. Our Trusted Home product was launched earlier in the year and is gaining traction as we partner with OEMs to integrate the service into residential routers and other networking equipment. Our Keystone product was shipped in 200,000 Hyundai and Kia cars, despite the impact of the silicon chip shortage on automotive OEMS. Our innovative pedigree continues to support market share gains in our core and new business lines with numerous customer wins during the year. Key among this were our 6 tier, 1 media security customers, including United Group, leading telecom and media operator in Southeastern Europe. We are also successful in gaining traction in new connected industry segments, notably in the high-speed rail networks and capital-intensive construction equipment spaces. Aside from encouraging operational delivery through the pandemic, we are also proud of 24 awards that Irdeto and Denuvo team secured during the year. This included the Best Cybersecurity Company Europe Award and several awards for our new automating technology that is integrated with IBM's cloud platform to enable easier deployment by operators. The fast-growing high-value sports betting segment has seen a surge in activity in recent years. On Slide 18, we focus on BetKing, a leading parent African sport betting business that combines the wells of live sports viewing and live sports betting in its product offering. Effective on October last year, we announced our initial 20% investment in this business, enabling us to indirectly add sport betting to our entertainment ecosystem, driving higher user engagement and ultimately long-term value. Global sport betting revenue are set to grow by more than $130 billion over the next 4 years. Africa currently comprises only 2% of the global market, but is poised for significant momentum as it starts to catch up. By leveraging its own proprietary technology, which allows you to adapt to the unique challenges of every market, BetKing is particularly well positioned to capture a large share of African growth opportunity. The business is using our investment proceeds to fund the expansion of their product set and geographic footprint beyond Nigeria, Kenya and Ethiopia. It is also benefiting from SuperSport's strong brand and reach and MCG's regional presence and acumen. We are very pleased with BetKing's operational progress, reflected by the strong growth in key metrics. This has been achieved despite the impact of COVID-19 on live sport events and thus also on sports betting activity during the year. As I mentioned in my opening remarks, we will be looking to increase our stake in BetKing to 49% for an amount of $282 million. $100 million will be paid as a primary issuance to fund BetKing's accelerated rollout play, whilst $182 million will be paid to partially buy out minorities. As a result of this transaction, the earn-out from original transaction will be cleared and a further $31 million will be payable. We will be raising ZAR 4 billion in rand-denominated debt to fund the investment, a condition precedent to the transaction and hope to close this deal by early August. This concludes the operational section. I would now like to hand you over to Tim to discuss our financial results in more detail.

Thank you, Calvo. We'll start with our financial highlights on Slide 20. The business faced a number of challenges this year from consumer pressure and foreign exchange rate volatility to the specific impact brought about by COVID-19 on revenue. Despite this, we've produced a strong set of results. We grew our revenues, while tight cost control and reduced losses in the Rest of Africa underpinned margin expansion. This led to robust growth in core headline earnings and healthy cash flow generation. Our balance sheet remains strong, which enables us to withstand uncertainty associated with our long-term economic impact of COVID-19 as well as the specific liquidity challenges in certain of our African markets. It also provides us with financial flexibility to drive growth and shareholder returns. Slide 21 provides a brief financial synopsis of the group. I would like to highlight that the percentages shown in brackets are the organic growth numbers, which excludes the impact of currency translation and M&A. We delivered a 4% nominal and 4% organic growth in revenue to ZAR 53.4 billion for the year. We recorded our highest ever trading profit of ZAR 10.3 billion, growing a significant 28% or 44% organically. Core headline earnings were up a meaningful 32% year-on-year to ZAR 3.3 billion, and our free cash flow grew a solid 10% to ZAR 5.7 billion. On Slide 22, we take a deeper look at our revenue numbers, starting with subscription revenue, and it's a key driver of subscriber growth. Just to remind everybody how the graphs work, if we start with the graph on the left-hand side, we present 90-day active subscribers with the bottom of the stack being South Africa and Rest of Africa above. The corresponding subscription revenue numbers are presented in the graph on the right-hand side. COVID-19 presented specific challenges during the year, which required careful navigation. We did well to hold on to our subscriber base with the easing of lockdown restrictions in most markets, despite consumers being subject to affordability pressure. However, the cancellation of live sport events during the first half of the financial year impacted revenue generation as the subscriber mix shifted to lower packs. In addition, commercial subscription revenues were significantly impacted as trading by our hotel, restaurant, pub and gym customers were materially affected by lockdown restrictions. Commercial subscription revenues finished the year 35% lower than the year before, and we expect this segment to take some time to normalize. Despite these challenges, we grew subscription revenue a solid 5% for the group. Subscription revenue in South Africa increased a modest 1% to ZAR 28.8 billion, with a strong 6% subscriber growth and price increases processed in the mass market, negated by the factors mentioned earlier. In the Rest of Africa, we saw subscription revenue growth of 11% to ZAR 15.9 billion, driven by subscriber growth and the successful implementation of price increases across all of our markets, largely from September. Some of these gains were offset by the impact of COVID-19 on the subscriber mix during the year and weaker in-market currencies relative to the rand. Although not presented on the graph, if we strip out this currency effect, the segment achieved organic subscription revenue growth of 14%. Turning to Slide 23. Here, we look at the total revenue numbers for the group, with the graph on the left-hand side also incorporating our technology business data. We had a strong second half revenue performance, growing 6% year-on-year to lift total revenue growth from 2% at the interim stage to 4% for the full year. I will talk mainly to the graph on the right-hand side, which looks at revenue by nature. Firstly, we see that 84% of our total revenues derived from subscription revenue, which grew 5% overall and has supported top line growth. Our technology revenues were also up a solid 5% for the year to ZAR 1.8 billion, despite the nonrecurrence of $8 million of one-off project revenue in the prior year and the deferral of certain project revenue due to COVID-19 as some customers delayed decision making on this type of work. Advertising revenue was the hardest hit by COVID-19, given the cancellation of live sport events and associated advertising revenues and a generally softer advertising market as a result of lower economic activity. However, the team had a noteworthy effort to claw back a large proportion of the 34% revenue losses reported at the interim stage, ending the year down a more palatable 11%. This was due to a concerted effort to onboard new clients, increasing the number of clients served by 30% and introducing new products and flexible pricing options. Other revenue grew 10% year-on-year, impacted mainly by hardware sales, which benefited from higher volumes and pricing changes. Slide 24 reflects our operating leverage on an organic basis. Our target is to keep organic growth and operating expenditure below organic revenue growth. We achieved a significant 7% operating leverage attributable to both top line performance reflected in the 4% organic growth in revenues and concerted cost-saving efforts, which resulted in a 3% reduction in organic costs. We also benefited from the deferral of ZAR 1.1 billion in sports rights costs, which will be incurred in financial year '22, together with the associated revenue uplift. We stepped up our cost-saving focus again and implemented initiatives early in the year as a means of protection against the potential business impact of COVID-19, exceeding our stretch targets of ZAR 1.4 billion. Although our cost-saving program still spans the entire business and a broad range of initiatives contributed, content savings accounted for 64%, including ZAR 500 million in refunds negotiated as many of the sports feeds were either curtailed or completed in a more condensed time period, reducing the broadcasting benefit for us. While these refunds will not change the run rate of our cost base going forward, they are a testament to our negotiation effort and the mutually beneficial partnerships we have with rights owners. Going forward, we still see scope for further cost savings in areas such as ongoing digitalization and savings as we consolidate and improve our IT systems. This could be tempered by the impact of an ongoing shortage in silicon chipsets on decoder costs. As we get leaner, we will also need to maintain a fine balance between the need to reduce costs and our desire to grow the business. Slide 25 provides detail on our profitability. The group increased its trading profit by a significant 28% or 44% organically to ZAR 10.3 billion. This resulted in a 3 percentage point expansion in margins from 16% to 19%. Considering the trading environment, this was a very strong performance and was underpinned by resilient revenue growth, cost-saving initiatives and reduced operating cost as we embrace new ways of working because of COVID-19. The graph on the right-hand side shows each of the different business segments. South Africa's trading margin improved from 30% to 32%, driven by 3 main factors: a strong performance on cost savings, the nonrecurrence of the 3 major sporting events that drove additional content and marketing spend in the prior period and deferred sport event costs. In the Rest of Africa, we saw a strong improvement in operating results, with a ZAR 1.5 billion reduction in losses year-on-year and a sizable ZAR 2.7 billion improvement organically. Consequently, the negative margin narrowed from minus 19% to minus 8%. Without the benefit of high-margin one-off project revenue in the prior year, the technology segment saw its trading margin normalized to a more sustainable 31%. Moving to Slide 26. By now, you will be familiar with our trading profit bridge for the Rest of Africa, showing our progress towards moving this business back to sustainable profitability. On the left-hand side of the graph, we showed the ZAR 2.9 billion trading loss for the prior period. We estimate that COVID-19 had an impact of around ZAR 650 million on the business, driven by the change in subscriber mix and the loss of commercial and advertising revenues. However, this was more than offset by content savings of ZAR 843 million during the period, being a combination of renegotiated contracts, sports refunds, savings on special events in the prior year, event cancellations and a shift in content amortization to financial year '22. Our strong performance was driven by subscriber wins of ZAR 1.3 billion, and the successful implementation of price increases, mainly from September onwards, which drove a further ZAR 1.3 billion increase in profitability. This resulted in Rest of Africa narrowing losses to just ZAR 253 million on an organic basis. Currency volatility continues to impact our overall performance, eroding profitability by ZAR 1.2 billion, driven primarily by the depreciation in the Angolan kwanza, the Nigerian naira and Zambian kwacha against the U.S. dollar. The net effect of this was a ZAR 1.4 billion loss for the period, reflecting a significant improvement of ZAR 1.5 billion or 52% better than the prior year. We have consistently delivered in narrowing the losses at each reporting period. At the time of listing, Rest of Africa had a trading loss of ZAR 3.7 billion. And in the last 2 years, our operating performance has generated improvements of ZAR 4.4 billion. Meaning, we would have comfortably turn profitable this financial year had it not been for excess of currency weakness. As we draw closer to our initial breakeven target, it will become increasingly difficult to absorb further abnormal foreign exchange volatility without impacting time lines. Therefore, while we are still on track to return the Rest of Africa business to profitability over the medium term, currencies as well as any longer-term impact of COVID-19 on African economies may cause a 6- to 12-month lag in reaching breakeven relative to our initial expectations at the time of listing. Slide 27 shows our core headline earnings, which is up a meaningful 32% year-on-year at ZAR 3.3 billion. On the right-hand side, we show the segmental drivers of this performance, namely the strong results in South Africa and the narrowing of losses in the Rest of Africa. Realized foreign exchange gains this year relative to losses in the prior year contributed ZAR 501 million to the core headline earnings growth. Looking at Slide 28, we generated healthy free cash flows of ZAR 5.7 billion, that is 10% up on the prior year. The graph provides some insights into key movements. So starting with the left-hand side. In the comparative period, we generated ZAR 5.2 billion in free cash flow. Cash EBITDA improved by ZAR 1.9 billion. Working capital remained relatively stable year-on-year in what remained a lighter working capital cycle. Increased content right prepayments were offset in an inflow -- by an inflow in inventory due to higher sales as well as favorable movements on our hedging instruments. While working capital can be lumpy, we are taking steps to improve this. For example, by reducing the value of prepayments made on our content rights, we're eliminating them entirely where that's possible. Some of our EBITDA gains were offset by higher lease payments that were impacted by foreign exchange movements and the ending of our payment holiday on our South African transponders from October 2019. Lastly, our CapEx spend increased this year as we gained momentum on the multiyear program to upgrade our customer service, billing and data capabilities. On Slide 29, we look at the strength of our balance sheet. Cash and cash equivalents amounted to a meaningful ZAR 8.5 billion. We also have facilities of ZAR 4 billion, bringing the total funds available to ZAR 12.5 billion. We note that some of these funds are not immediately available to us or have been set aside for other uses. ZAR 2.1 billion is currently subject to in-country restrictions or liquidity constraints, notably in Nigeria. ZAR 500 million will be used to pay the current portion of the 3-year amortizing loan of ZAR 1.5 billion, which we concluded in November last year to assist with funding our working capital requirements and to improve the group's cost of capital. Added to this is ZAR 183 million, which represents the current portion of the BetKing earn-out prior to taking the new transaction into account. And ZAR 3.8 billion will be set aside to pay the Phuthuma Nathi and MCG dividends in September of this year. We have a principled approach of returning excess cash to shareholders in the most optimal way. Last year, we delivered on our commitment and paid a dividend of ZAR 2.5 billion at a time when many others elected to withhold or reduce their dividend payments. This year, the Board declared a ZAR 2.5 billion dividend to shareholders, representing a 4% yield on the current share price. After taking all of this into account, we are left with ZAR 5.9 billion in available funds. Our strong balance sheet is welcome in this time of uncertainty as the full impact of COVID-19 on the consumer and our business is still largely unknown. It also allows us to fund the Rest of Africa segment as it returns to profitability and provides us with financial flexibility to pursue growth opportunities aimed at expanding our ecosystem. As Calvo mentioned earlier, we will be looking to fund the additional investment in BetKing by way of a ZAR 4 billion loan, and it should, therefore, have limited impact on our cash on hand in the short term. This concludes the finance section. And I will now hand back to Calvo to share some thoughts on our outlook for the next financial year.

Thank you, Tim. Let's turn to Slide 31, where we try to provide the balance in a period of great uncertainty. In FY '21, our team successfully navigated several challenges and produced a great set of results against the odds. We are immensely grateful for their efforts, and we'll look to build on this momentum in FY '22. We hope to see our advertising business sustain its monthly run rate, which recovered to reach pre-pandemic levels in the second half of the year. In the absence of any further interruptions from the global pandemic, we also hope to leverage some exciting events in the sporting well this year, including Euro 2020 and the much anticipated British & Irish Lions Rugby Tour. Finally, we remain hard at work driving improvements across our operations, including new product launches, and we'll continue to evaluate select growth opportunities. While there are many positives to reflect, we must also be cognizant of the risks we face as we move into the new financial year. Firstly, as we reflect in the finance section, a material content cost deferral, mainly around live sports events, will impact the FY '22 results. Although we'll expect some positive impact on our customer base, it will be prudent to factor this cost into overall margin considerations. Further, we are still amid a very difficult period for consumer across the continent and it is not yet clear where economic activity will settle for the bulk of our consumer base, given the numerous challenges that we face. And finally, whilst currencies have been stable of late, one can never ignore the potential impact on our business. We are excited about the future and our opportunities for growth. While the year ahead will not be without challenges, we will look to counter any headwinds through tight cost controls and by driving operational excellence. So to conclude on Slide 32, I would like to share our strategic objectives for the year ahead. We will continue bringing customers great content, doubling down on our investment in local content, where we are targeting to spend 45% of our total general entertainment content spend. We'll leverage our scale and reach to build our ecosystem further. This will be done by focusing on new products and services as well as through investment opportunities such as BetKing, where we hope to bare down the additional investment over the next month or 2. We will drive growth across our platforms. On the linear side, we will aim to retain our core customer base and add new customers. On the OTT front, we would like to build scale as rapidly as possible and strengthen our content offering. Irdeto will further pursue global digital security leadership through market share gains in media security and progress in connected industries, and we plan to do all of this while driving operational excellence and keeping costs firmly under control. That concludes today's presentation. I'll leave you with this final slide on Page 33, which provides a reminder of our strong position to navigate our expanding opportunity set and grow this business over the long term. We would now like to invite you to take the opportunity to ask some questions. Thank you very much.

[Operator Instructions] Our first question is from Jonathan Kennedy-Good of JPMorgan.

First question for me is the $282 million on the BetKing investment implies roughly $1 billion valuation on the business. I just wanted to find out whether the majority shareholder also contributed to growth capital within the business during the capital raise, i.e., how much capital is on hand? Is it simply the $100 million you've contributed? Or is there additional funds available? And then also on BetKing, just wanted to understand what kind of service level agreements are in place with BetKing, if any, to access what is a very valuable asset in terms of your subscriber base. Do you monetize that in any way? And then finally, has there been integration on the -- with BetKing in terms of accessing your subscriber base? And how is the uptake being on initially? And how has that improved ARPU in those cohorts?

Yes. Maybe let me start, and Tim will also add. In terms of the collaboration with BetKing, we have teams working together on various areas of integration between our platforms, especially speaking to the SuperSport apps and also on the advertising side of the linear pay-TV business. The discussions are ongoing, and we -- there are some interesting products that are going to be launched imminently that will be going into the market. What we have seen in terms of our collaboration where we went into Ethiopia together and put in a beat to be the broadcast sponsor of the Ethiopian Premier League, and they have their name in rights of the Ethiopian Premier league. It's the first partnership that we did together with BetKing, which showed that when we come together to identify an opportunity and go for it, it works really well and it becomes appealing to the broader market. And we have seen good traction between the partnership as it happens in -- as it happened in Ethiopia. Without going into the details of the exact nature of the partnerships that are -- or the integration that is going to come in, I would just like us to just hold back on giving much at this stage. And as we launch the products into the market, you will see the type of product that will be coming in, but they are very exciting. And the teams are really looking forward to the product launches that are going to come as a result of the integration between the 2 companies. And we believe very strongly that they will work very well for us. Tim, do you want to take the questions on the number side?

Thank you, Calvo. Yes, please. I'd maybe just like to start with the correction on the valuation. The valuation is actually $750 million. The reason that you -- it doesn't work if you simply take the number and divide it by 0.29 is because when you do a primary issuance, there's a dilution of your existing shareholdings. So it's -- the calculation gets a bit complicated, but the valuation is actually $750 million, just so that you have a proper reference point. And then from a cash perspective, this business has got $100 million in the business already. Most of that came from our initial 20% investment that went into the business. This $100 million second issuance is going to take the cash flow up to just over $200 million, and that will be sufficient to fund the growth prospects as we go forward. I think that covered most of the questions, I think.

Yes. Yes.

The next question is from John Kim of UBS.

Expanding on the BetKing story, are there any metrics you can provide for us in terms of market size, market position, valuation metrics that can help us get more comfortable with the investment?

Yes. Tim, do you want to respond to that, Tim?

Yes, sure. So we did 2 valuations on this business. The first valuation that we did looked at a discounted cash flow model, which is your typical brick-and-mortar type business valuation. And we then compare that valuation to a more -- kind of a more traditional high-growth tech business type valuation, which is usually based on revenue multiples. Both of those valuations supported very strongly the $750 million. And the second transaction that we've just done compares the metrics on the -- especially on the multiple valuation is very similar to the first deal that we did. Remembering that the turnover in the first -- the last year of trading, so from 2019 to 2020, the turnover increased 43%. And keeping in mind that, that metric was -- that growth rate in revenue was off the back of being in COVID-19. And that impacted them quite a bit, especially in the Nigerian market, where they do a lot of their selling through agents. So when those guys got locked down, it had a big impact on their business. It converted a lot of their business from agency during that period into online. And they've managed to keep those subscribers and keep growing them subsequent to the lockdowns being eased up. So from a metrics point of view, we were very comfortable that both the discounted cash flow and the revenue metrics both supported this valuation.

[Operator Instructions] The next question is from Warwick Bam of Avior Capital Market.

Just 3 for me. Considering the return of content costs in 2022, do you expect the losses in the Rest of Africa to continue narrowing, assuming constant currencies? Second question is, you attribute the decline in SA premium subscribers to down trading. What portion of the 100,000 premium subscribers that you lost in the period, either cancel their subscription or moved to your most basic offering? And then last point, do you think that the regulation around online sports betting is mature enough in Africa to understand the potential risks?

Yes. Thanks. I'll start by responding and then Tim will add. In terms of the premium subscribers, and -- we have not done yet a thorough analysis of the exact numbers. So I will not give you the exact numbers. But what we have seen is that we have customers that come down to the lower bouquets. But at the same time, we also have customers that move on to the online platforms. Those that move on to the OTT platforms, what we -- our research has given us is that 8 out of 10 of those that move on to the likes of Netflix and Amazon also remain on the DStv platform, which means that they stay within the lower bouquets. What we are seeing is that as a result of the lag of rugby, you see people coming down. But as soon as rugby comes back, you see people going up. But because this past year has been very difficult year for rugby for most of the part of the year, I think that's why we are seeing a significant number of people that have downgraded from premium as compared to the previous year. And I hope that assists in terms of answering the questions around the numbers on premium. On the online side, in terms of regulation on sport betting, our indication so far in the markets that we operate in is that regulation on the online side of betting has not really taken off that margin in the Rest of Africa. And what our experience in terms of regulation is that regulation often lags technological development. So you'll find that the online up until it becomes readily available and proliferated in a particular market, regulation will not be implemented immediately. However, we have been operating in a highly regulated industry in broadcasting. And our experience has shown that early engagement with regulators help us in terms of making sure that when they come up with regulation, it's in line with what the industry can live with. And that's why we believe our business acumen, together with the shareholding that we'll hold -- we hold in BetKing be able to help BetKing in navigating all these new areas of regulation that they will not be readily to interact with regulators on that front. So that is the biggest contribution that we are bringing to BetKing as well over and above our platform and the SuperSport brand behind us.

Calvo, can I maybe answer that last question about the Rest of Africa and the shifting of content cost?

Yes.

Yes. So our guidance from insurance hasn't changed. We still think that the path to breakeven is delayed by between 6 and 12 months. But we're still reasonably confident that we're going to keep the progression towards that breakeven point. And we are pretty confident that we can still get there within the time frames that we gave at the interims. Just maybe to remind everybody that cash flow breakeven for Rest of Africa, we expect to be about a year behind accounting breakeven because they're running with about ZAR 1 billion of tax payments in that business.

The next question is from of Thapelo Mokonyane of Investec. Thapelo, your line is open. Would you like to ask your question? Okay. It seems we have a technical issue there. Then, Meloy, we have no further questions in the queue at the moment. Do you have any questions from the webcast?

Yes, we do. Maybe I'll give them 2 at a time. Thapelo raised his question here on the web. He's asking what other adjacent areas are you looking at? And can we expect similar acquisitions to BetKing in the future? And then Warren Riley from Bateleur Capital is asking, what regulations do Nigeria have in place around online gambling? Are there risk that regulation is increased in the coming years? It's [indiscernible] let's take those 2.

Yes. So in terms of expanding our ecosystem, the way we have looked at our ecosystem is look at our platform and look at businesses that make sense that can tie into our core. We have looked at sport betting, and that's why we have done this investment in sport betting. But if you look at sport betting and the number of products that you can add over and above just sport betting, you realize that you've got a whole lot of other product that will be introduced over a period of time in this area. And those are the ones that we have added. On the video entertainment side, we have already spoken about the integration of third-party OTT platforms onto the platform. And those as well are part of expanding of our ecosystem so that we become a one-stop shop for video entertainment on the continent. On the insurance side, you can see we also follow the similar model of looking at first, the products within our ecosystem, which was decoder insurance, then we move to debt waiver and funeral cover. Those are the way that we look at expanding our ecosystem. So everything that we need to bring in need to be something that we can tie back to our 100 million customers that will be able to get them to access services that they require on a day-to-day basis based on technology so that it make their life easy as we bring these products onto their services. So we need products that are technology-driven that tie nicely with our ecosystem, and that is the way that we'll evaluate as to what else to add onto our ecosystem. And I hope that assist in that regard. In terms of regulation in Nigeria, we do not anticipate more regulation coming in. And the Nigerian market in terms of betting is a market that has been ongoing for many, many years. And so far, there has not been any indication from regulators that they are trying to clamp down on sport betting. If you look at the licensing regime as well, it's a very liberal licensing regime. You just go to each state and then make sure that it will follow the registration process and the license gets issued there and there. The only thing that they are focused on, which we are making sure that the betting guys are compliant with and they've always been complying with. It's around payment of taxes in time and making sure that the regulators are comfortable -- tax authorities are comfortable with the reporting in terms of the revenue that are received from betting. So that is really working very well. They've got a compliance regime that works very well. And we don't foresee anything coming out of the ordinary in terms of regulation. And as I said, on the online regulation side, it always lags behind the industry to see how the industry evolve and then regulations start following after it has proliferated in each market.

Any telephone questions? Chris, we have more questions on the web.

Yes, we do have -- you can go ahead. We also have Thapelo on the line. I don't know if you want to just check if that question was responded to.

Maybe give Thapelo a chance. He seems to be having some challenges.

Then Thapelo Mokonyane from Investec.

Can you hear me?

Yes. Thank you.

I have 3 questions. I just want to ask 1 question. The first one is BetKing. What kind of internal capital are you targeting for that acquisition? And how should we think about the fixed cost investment for the business going forward? Second question is on SA margins. Is there a risk of undershooting the long-term 32% target in trading profit margin due to the defied sports-related cost for financial year '22 and obviously taking into account some of the cost savings that you are targeting? And -- I mean, I guess related to that, you show that chart where you show how much operating leverage you managed to have struck over the last 3 years. Should we expect a similar trend for financial year '22? And yes -- I mean, those are the questions.

I'll ask Tim to respond to those.

Thank you, Calvo. So what we can tell you in terms of our expected return on investment in BetKing is that it's well in excess of our cost of capital, but that is as far as we can go with sharing that level of detail at the moment. There may be information that we can share later on, but not at this early stage, in particular, while we are a minority shareholder in this business. But if you think about a business that has grown, its revenues by 43%, we think that, that is -- that level of growth rate is fairly sustainable. They've got large ambitions to roll out multiple markets that they are not currently in, and they've got ambitions to add additional product suite to the current betting and -- the betting product they currently got in their stable. So we think that the upside potential is still quite significant there. Then you asked a question about the South African margins. So we've given guidance that we try to target a range of 30% to 32% for the South African business. We are -- there's nothing that we had looked at in that business that has given cause for us to change that guidance. Obviously, the fact that we've got costs that have been deferred from last year, financial year 2022, the ZAR 1.1 billion, that cost deferral will, obviously, come with sport events that's associated with it. So, for example, where a lot of the football leagues had a short -- 1-month short in the financial year 2021 will have 1 extra month of viewing on this financial year. And we're hoping that, that will drive retention and keep the subscribers on the base. Obviously, we don't know what that outcome will be yet. But normally, there's a revenue associated with the cost deferral. So it's not a simple case of simply saying, well, the cost shift across and there's no revenue upside. It's just difficult to call in advance what that revenue might look like. Guys, just remind me, what other questions were there?

Just on the operating leverage. I mean, should we expect that similar trend that you achieved over the last 3 years?

Yes. Look, I mean, that one is more difficult to call, right? Because there are so many moving parts in coming up with an operating leverage like that. Our target is clearly to remain in a positive band. In other words, our main and primary focus is to make sure that our operating costs -- the increase in operating costs or decrease is better than whatever we're doing on the revenue side. Now whether we can achieve what we've achieved in the past couple of years is -- I mean, it's too early to tell, the number one. We have set ourselves cost saving objectives again this year. It's a regular feature of our business, and it's quite well entrenched in our culture. But what I can say is that as we save more and more money out of the business, what we're expecting to start seeing is probably a little bit more lumpiness in the costs and the cost saving ability. So you may need to wait, for example, for certain rights, bigger rights to become available or to get to renewals before you can renegotiate them. We'll also need to, for example, look at the timing on when we can take legacy -- expensive legacy IT costs out of the system. You'll know that we've got a multiyear CapEx program on the go at the moment to upgrade our customer-facing systems. When those eventually get deployed into the biggest markets, we can then take a whole lot of legacy costs out the back end. But all of that is dependent on timing of when those projects come to market and when we can release those projects and close down the old legacy costs. And those projects, they -- the timing of those projects are not in exact science. So I think, directionally, we are still pushing to get a good result, but I can't give you a specific tier about what that result might look like. It's too early to tell -- too early to call that.

We have no further questions in the queue. Meloy, is there questions from the webcast?

Yes. A question of timing. And so therefore, we're going to try and lump them together. And maybe also, there's some questions that I believe we have answered. If you feel that maybe you need some additional clarity, maybe then just send us a mail. I think from the questions here, there's a question from [ Mark Nermo ] from Excelsia, wanting to know what's the current of shareholding? Maybe in the interest of time, I can answer that one. It's unchanged at 12% as it was in October last year. Wessel from Oyster Catcher asked a question about the cost of deferral, the ZAR 1.1 billion and the ZAR 0.5 billion that kind of combined adds up to ZAR 1.6 billion into the new year and then the revenue around that. Wessel, I think, Tim, has just kind of explained that, that there will be the revenue associated with that. So I think that questions have been answered. And then [ Eryat ] from Sanlam Private Wealth actually asked a question about the BetKing revenue number and margin structure. That was disclosed in our sales release, but I can just quickly give it to you again. It's $78 million in revenue. $11 million in EBITDA. So that's around about a 14% margin. I should highlight that this is at a very early stage and very much impacted by the fact that they are driving scale and investing in new markets and new products at this stage. [ Honey Levesquaque ] is asking a question, the discussion with MultiChoice discussions with a fiber ISPs for the bundled products, where do we stand on that? Asking about what's our stance on the seat proposal that a household tax to be collected by the dominant pay-TV broadcaster? So I think -- so I'll leave that for Calvo to handle. [ Mike Grasty ] from Anchor wants to know how reliant BetKing is on Nigeria? We're having with investing capital in a market with such uncertainty around accessing cash. And then [ Jeric ] from [indiscernible] is asking what is our expectations between subscribers in the coming year?

Okay. Maybe let me start with -- yes. I'll start responding on the pay-TV for the dominant. So we do not think we are dominant for us to be the ones that are collecting. So we were in front of the government today on the hearings on the white paper, which prompted this discussion about collection for the SABC. And our position is simply very clear. We can't be held responsible for collecting money on behalf of a government entity. The government entity itself needs to find a way to collect such monies. And we have further made it clear that we think this is an old way of thinking around public service mandate. There are much more better ways of public service funding that we have seen all over the world where people have moved away from a device into a public service contribution wherein taxpayers are able to contribute a little bit and the public broadcaster is able to survive. On the Nigeria side, I think when you look at the Nigerian economy, we just need to take into account that Nigeria is a big market. And despite challenges that you face, that is also an area once you have managed to crack, you then are able to get great returns in that market. And I think you need to have a long-term view on what you think of Africa in the long term. And in the long term, I think this continent, we are very strong in our conviction that it's going to be a continent where everybody will want to play in because we have got a young population, democracy is expanding, information sharing is happening as we have -- as it happens on social media and other forms. And therefore, the nature of democracy being extended across many territories, across the continent will just amplify the chances of people then moving from being in the lower end of the market to get into the middle class and grow. So we are -- in our conviction, we are very clear that the African market is in infancy, and it will continue to grow. And if we invest now, we are going to reap the benefits as the African market grows into the future. And the same applies to the Nigerian market, more specifically because it's a big market. And we are seeing as ourselves gaining traction on the pay-TV side. And there are some areas that they still need to work on. But we believe that over time, these things are going to be overcome, as the population demand more accountability of authorities and everybody else that is operating in these particular markets. Meloy, is there anything that I've left out?

That's fine. Will check the questions again.

Yes. It sounded like you covered most of them, Calvo.

Okay.

Okay. There's 1 question -- sorry asked by Steven with 36ONE about us being concerned about moving into gambling. I think -- this is sports betting, but whether that's a problem in terms of sensitive investments.

Yes. I mean, there is a lot of emphasis and there is self regulatory mechanism where the sport betting industry as a whole, which recognize that betting is always looked frown upon from -- by investors and just generally because of the history of betting. However, all these board betting companies have an industry body. They have their code of conduct that they comply with. And BetKing is also part of this industry body wherein they are trying to make sure that they cut off people that are spending too much time on betting and spending excessive amount of money. In fact, BetKing has got thresholds upon which people are not even allowed to come back and bet based on the behavior that -- and activity to a certain level that they think is beyond the number that they expect out of a person playing on their platform. So more and more companies are beginning to realize that this is an area that you need to carefully manage just for their reputation as well as sport betting industry. And that's why they are putting checks and balances to make sure that people -- they don't -- people don't act irresponsibly in this area.

Bruce, I'm very conscious of time. I mean -- and I realize that perhaps we have not necessarily answered all the questions. If maybe I could ask if you didn't answer any of your question or you have a follow-up question to maybe reach out to the IR team, and we will definitely try and respond as quickly as possible. But I think in the interest of time, you've been all very patient in joining us and the call has been running for quite a while, I would like to hand to Calvo to make some closing remarks.

Thank you very much, Meloy, and thank you very much for your time.

Bruce, I think that concludes our call for today. And thank you, everyone, for joining us, and stay safe, stay healthy and we hope to take our discussion further over the next couple of days. And as I say, if there's anything unclear, please feel free to reach out.

Thank you, everybody.

Thank you very much. Ladies and gentlemen, you may now disconnect.