DStv owner in trouble

MultiChoice is taking hits from its high inflation, high cost of living operating markets, and massive foreign currency impacts – especially in its Rest of Africa segment – that weigh on the company’s financial performance.

The technology giant – which owns DStv and Showmax – released its results for the year through March 2024, which revealed disappointing results for the company.

The results showed that MultiChoice recorded a R4.1 billion loss and has become technically insolvent.

MultiChoice also suffered a 9% decline in active subscribers, mainly due to a 13% decline in the Rest of Africa business and a 5% decline in South Africa.

The company admitted that despite an expected decline in subscribers following a financial year that included the FIFA World Cup, it was not expecting such a sharp drop. 

DStv’s subscriber growth tends to be outsized during years with major sporting events as people sign up for their service to watch. This is particularly prevalent during football World Cup years. 

In turn, the year following a major sporting event tends to see muted subscriber growth and even a decline due to people unsubscribing as they no longer see a need to pay for the service. 

MultiChoice attributed the sharper-than-expected decline to a difficult macroeconomic environment and a consumer that has come under increasing financial pressure. 

It also continued to blame load-shedding despite the intensity of power cuts reducing in the second half of its reporting period. 

MultiChoice CFO Tim Jacobs told Daily Investor that “there’s no question in our mind that we’re probably going through one of the most difficult consumer environments that we’ve seen in a long, long time”.

He said the company’s 2024 financial year saw a continuation of high interest rates and a consumer in significant distress throughout the year in South Africa.

Therefore, Jacobs said affordability is the main reason behind the decline in subscribers.

He explained that the company’s subscriber base, while smaller, is still deeply engaged in DStv’s content. This is a positive sign for the company as it shows that the decline in subscribers is not necessarily due to a decline in quality but rather people’s ability to afford the service.

He said this is particularly prevalent in MultiChoice’s Rest of Africa segment, with many African countries experiencing hyperinflation, impacting consumers’ wallets.

“If we think that a customer in South Africa is under economic pressure – in the rest of Africa, you’ve got a couple of markets where inflation is well over 25%,” he said.

“Nigeria, Ghana and Angola are in hyperinflation over 30%. In some of these markets, we are now competing against basic foodstuffs.”

He said the company has fought back against this with cost-cutting measures that allowed it to deliver R1.9 billion in cost savings against an initial target of R0.8 billion

The company also reduced its set-top box subsidies by R1.5 billion year-on-year.

Another major problem in the company’s Rest of Africa segment has been foreign exchange headwinds.

In its results, the company said that despite a disciplined approach towards inflation-led pricing, the combination of foreign exchange headwinds and a lower subscriber base resulted in a net decline in group revenues of 5% to R56.0 billion (+3% organic). 

Subscription revenues were 7% lower and advertising revenues followed a similar trend, both impacted by the weaker naira.

Weaker subscriber trends and foreign exchange pressures affected group trading profit, which was down 21% to R7.9 billion. 

“The group has acted quickly to optimally position the business to weather the foreign exchange crisis that has developed across its core markets while simultaneously ensuring that its long-term strategic initiatives are not compromised,” the company said.

“In the short term, the group has prioritised cash generation over growth. Nigeria, Angola, Kenya, Zambia, all of these currencies completely blew out last year,” Jacobs explained.

For context, he said in the first five years of listing, from 2019 to 2023, MultiChoice had a cumulative foreign currency impact of about R4.3 billion.

In this past financial year alone, the company had a R4.5 billion impact.

“And that’s effectively the reason that our trading profit has dropped from plus 24% to minus 21%,” he said.

To combat this problem, Jacobs said they are spending an inordinate amount of time trying to look at various alternatives that apply directly to that Nigerian market.

Some of those measures have included stopping or reducing its set-top box subsidies and implementing double price increases in Nigeria through last year.

“We’ve been very, very aggressive on all of the levers that we can manage,” he said.

However, this forex pain will continue for years to come, as the naira free-float implemented last year is set to take years before the currency stabilises again.

Nigeria is also not a market MultiChoice can afford to pull out of, meaning the company’s only option is to remain cost-disciplined and take the hits that come its way.