MultiChoice Group Limited (MCHOY) Q2 2024 Earnings Call Transcript

MultiChoice Group Limited (OTCPK:MCHOY) Q2 2024 Results Conference Call November 16, 2023 8:00 AM ET

Company Participants

Meloy Horn – Head, IR

Calvo Mawela – CEO

Tim Jacobs – CFO

Conference Call Participants

Jared Hoover – RMB Morgan Stanley

Operator

Good day, ladies and gentlemen, and welcome to the MultiChoice Group First Half FY ’24 Annual Results Call. [Operator Instructions]. Also note that this event is being recorded.

I will now hand the conference over to Meloy Horn. Please go ahead.

Meloy Horn

Thank you, Chris, and hello everyone. Our results for the six months ended September 2023 released yesterday, and all of you who registered on our database, would have received an e-mail with all the relevant results information. If you’re not on our list, we would like to ask that you please register, it just makes life easier on our side, but in the meantime, you can find today’s presentation under latest results in the Investors Section of our website.

As usual, we will start today’s session with a presentation by our CEO, Calvo Mawela, who will provide an overview and then update on operations. This will be followed by our CFO, Tim Jacobs, who will be presenting the financials and outlook for the reminder of the year. Thereafter, we will also gladly take some questions.

So let’s start over to Calvo.

Calvo Mawela

Good day, everyone, and thank you for joining us. The past 6 months provided an opportunity for us to demonstrate our ability to adapt. The interim numbers which we released yesterday reflect our resilience and some excellent execution.

In a very challenging environment, we have delivered a 31% trading margin in South Africa, which positions us well for the remainder of the year. We have been able to keep the Rest of Africa business profitable. We have taken significant cost out of the system while keeping capacity and we’re driving additional future growth with the launch of super sport bed and the new show max showcasing our ability to stay ahead of the curve.

As we show on Slide 5, the consumer challenges flagged last year persisted into the first half of this financial year. Like many other South African businesses, load sharing remains the most immediate challenge for us. This is due to a major increase in the number of days and the intensity of disruptions as we show in the slide on the top left of the page. The bottom left of the slide shows its negative impact on our business where significant rise in load shedding in May caused a drop in our active subscriber base.

What is important to note, as September shows, is how things turn around as soon as electricity supply improves. The cost-of-living crisis is widely recognized, and the impact of high inflation and interest rate shocks have not escaped consumers on the African continent.

In hard times, some households don’t have a choice but to cancel their DStv subscriptions and come back once things improve. But we are pleased that the quality of our entertainment has built resilience into this. The naira, which weakened by 57% year-on-year has certainly created serious headwinds for us. The currency has been quite volatile lately, but we are encouraged by potential government actions to address the issues.

In the meantime, we are taking active steps to right size the Nigerian business for the current economic reality. Overall, this is a tough economic climate and like others, we are not immune. But we have shown that we are effective in managing this and that our customers appreciate the quality of our offering.

Turning to Slide 6, our multi choice South Africa team has done a remarkable job in reenergizing and taking active steps to stabilize the business given the impact of load sharing. We have seen some good initial progress, which we expect to continue. A key highlight for us was the premium customer base, which grew 5% year-on-year and posted positive growth for the first time in many years, DStv Stream enjoyed strong growth mostly after its relaunch in July this year.

It is worth highlighting that over 90% of DStv Stream subscribers edit in the period are new subscribers to DStv who find the connected product without the need for hardware installation more appealing. Extra Stream, which solves the one stream limitation via mobile was launched with great success earlier this year. This gives us confidence for the launch of our new proximity control option, which offers additional streams within the household.

The team also recalibrated the pricing and value proposition of the DStv business play packages, which led to a 37% increase in month-on-month revenues in September 2023. This decision was taken to better monetize the DStv content whilst in pubs and clubs who pay the equivalent of only one-third of a premium subscription, a price point clearly out of line relative to value.

DStv insurance continues to enjoy healthy growth with active policies increasing a healthy 18% to 3.1 million. This segment reported an impressive 31% increase in revenue, almost reaching the ZAR0.5 billion. We are also pleased with the ongoing traction of DStv internet, which more than doubled its revenues year-on-year. The Rest of Africa team stepped up the challenge of achieving profitability by implementing growth initiatives and tactical savings as we show on Slide 7, several initiatives were implemented to boost revenue.

The launch of GOtv Supa+ in August provides DStv subscribers with a similar value proposition and price point to the GOtv compact service. This offering has gained great traction and as we earn $6 more per subscription, it supports ARPUs and should lead to a $30 million revenue uplift.

To account for a high inflation environment, we increased prices across the region by 14% on a weighted average basis. Although our general policy is to increase prices only once a year, a good currency challenges sometimes from us to do so more frequently. This was the case in Kenya and Zambia where we responded with price increases in April and August.

More recently, we have put through another 19% price increase in Nigeria to account for the further naira weakness. The team also implemented specific initiatives to reduce costs, especially around decoder subsidies. Given the ramp up in decoder subsidies last year around the FIFA World Cup and taking the macro situation into account, we felt this year called for a more measured approach.

We also saved on content and SG&A, which allowed us to deliver trading profit of R330 million in the rest of Africa, which is almost R600 million year-on-year.

Turning to Slide 8. As we explained at our Capital Markets Day earlier this year, we have always been focused on maximizing the value we can deliver as a business. Leveraging the scale of our leading entertainment platform and our daily access to more than 100 million individuals, we are well positioned to drive future returns by delivering exponential growth through our expanded consumer offering. The launch of SuperSportBet and Showmax, two exciting new growth opportunities, we’ll be a catalyst for us to double our customer base and generate more than $1 billion in revenue in the coming years.

Tim, our CFO, will get granular about the investment in Showmax later on and will provide more specifics closer to the launch.

On Slide 9, I would like to spend a moment reflecting on the imminent launch of Showmax 2.0 and why we are so excited about the potential of this offering. We believe streaming will be the critical next step for the African market, and we are ahead of the curve with a scalable platform, leading content both local and international and ready to benefit from first mover advantage.

There has been a short period during the COVID years where global streaming operators invested aggressively in the scaling of their businesses. This resulted in some questions being raised about the economics of the streaming business model. Nonetheless, all evidence now suggests that streaming services will likely be profitable soon as operators have revised their content costs. Subscription prices are increasing everywhere, and the financials of the streaming business are definitely improving.

Consolidation in the streaming industry is likely to strengthen the hand of some existing operators while others that are non-profitable will likely close. It is therefore critically important that we make our move now. Before others reorganize themselves and make a play for Africa, which is seen as the last remaining growth of market.

There are currently just over 450 million smartphones in the hands of individuals across Africa and at least 250 million football lovers on the continent. This represents a significant addressable market for our new Showmax product. Our EPL in your pocket mobile offering cannot be cast onto a TV screen and will be aimed at bringing the English Premier League games to individuals rather than households, as households tend to gather around the TV and are catered for by existing DTH and DTT offerings.

The most exciting part of the new offering is that it will make the EPL available to a new market that loves the EPL but are unable to acquire dish or want to watch while on the go. The EPL is super excited as this will be the first mobile stand-alone EPL offering globally and underlines our deep relationship. They’ve made some unique programming available to complement the live matches and which is going deeper than ever before behind the scenes, while they are also making players like Drogba available to drive promotion.

As for the core general entertainment offering, it will focus on leveraging our vast libraries of local content and access to leading international general entertainment content anytime, anywhere.

Turning to Slide 10, we have been hard at work over the past 6 months getting ready for the Showmax launch, which is scheduled for February 2024. Through this process, we are starting to see the benefits of our partnership with Comcast, especially as we leverage the power of Peacock platform and its immense scalability. Not only do they employ more than 2,500 engineers who work on enhancing the platform on a daily basis, but every December, they live stream the NFL to more than 6 million peak concurrent users. This is simply not something that we could have built ourselves without incurring massive cost and execution risks. Streaming will be an evolving space, and our agreement also ensures that we are on Peacock’s global road map, but incorporates the local capabilities such as bit rate compression, which show makes us pioneered.

On the content side, we have capability to produce the African stories that everybody loves like nobody else. Through our substantial investment in local content, we now own a significant local content library of 80,000 hours that we are able to monetize. Complementing our mass local content will be great international content from our partners through the lives of NBCUniversal, Sky and Dreamworks as well as third parties such as HBO, Warner Brothers and Sony.

Payments and distribution is another important driver for our success and maximizes the economics of our business model. Moment, the Fintech platform in which we have built a 27% stake, has already integrated the key show mix payment options with the aim of onboarding all 200 of our payment partners over the coming months. And to drive distribution, we have secured very valuable local partnerships, which we’ll reveal closer to the launch. We are certainly looking forward to show mix changing content game in Africa and doubling our customer base.

That concludes the overview. Let’s now turn to Slide 12 to discuss our operations. As demand for local content continue to exceed supply and ahead of the show mix relaunch, we step out our investment in local content by 16%. As a result, our local content driver is now at almost 80,000 hours, which, for context, is around 9 years of continuous streaming content. Local content matters to our customers and is a true differentiator. It also means that multi choice plays a vital role in supporting and developing the continent’s wider video entertainment industry.

Our target had been to spend 50% of our general entertainment budget on local content by FY ’24. But having achieved it a year early, the focus has now shifted to the number of hours of local content produced, the optimum allocation of those hours between the group’s linear and streaming offerings, and the monetization of each hour of content produced. The undoubted highlight of the interim period for M-Net was the premier of Shaka iLembe. The show delivered record views with each episode averaging more than 3 million viewers, mostly through live viewing.

We have renewed several studio deals during the period, and our core production slate continues to expand with 6 pro productions scheduled for release in the second half. As part of our ongoing cost optimization process, we have been able to reduce that party costs. This has been through renewals that reduce fees or at the same rates, converting contracts into local currency and adding forex protection mechanisms.

Moving to super spot-on Slide 13, we could not be more proud of DStv, the home of the bucket. Following on from the success of the FIFA World Cup last year. The interim period saw SuperSport successfully broadcast 3 World Cup events, yet again reflecting our ability to source content from a wide variety or suppose through the deep international partnership we have built.

The FIFA Women’s World Cup in July and August drew record television audiences. The Netball World Cup in Cape Town hosted on the African soil for the first time and produced by an all-female crew was shortly tested at the sports business awards. Our Rugby World Cup production drew record viewers and served as a reminder that we can be stronger together.

Now, we are rooting for the broadcast of the Cricket World Cup. The past 6 months saw the SuperSport team increase the broadcast of live events by 21% to 17,000 hours, step up our investment in local sport by 8%, and increase our own local production by 57%. The broadcast of this year’s Comrades Marathon was the biggest production in SuperSport’s history. The team was also able to renew several sports rights as we continue to provide our viewers with a wide variety of choice. We remain committed to making school sport accessible to all levels of society through our SuperSport schools’ platform.

This user base grew by 69% over the last 6 months, providing a valuable stage for identifying the next generation of South Africa sporting stars. And then we enjoyed great success in working with the PSL to reenergize the league through various initiatives. Our leading position in delivering sporting content is also key to broadening our ecosystem with some new strategic initiatives such as SuperSportBet and the English Premier League in your pocket, which I mentioned earlier. These complementary services will help us to drive subscriber adoption, expand market share and deliver additional revenue streams.

Slide 14 shows the key KPIs of our South African linear business. Outside of the ongoing impact of load shedding, which I’ve already explained, reported subscriber growth was impacted by the removal of 311,000 nonrevenue generating customers from the base. This was due to our decision to end the short-term supplies and delight campaigns, which were launched to support customers badly affected by load shedding at the end of last year. While we try to support customers in adverse conditions, like we did during the COVID-19 lockdowns, we can only do so for limited period of time.

The effect of this decision is clearly highlighted in the graph on the left. The South African business reported a 5% decline in 90-day active customers to 8.6 million, of which 3% can be added to this year. We are particularly pleased with the 5% growth in our premium base, which showed positive growth for the first time in years. The performance of the overall premium segment was however dragged down by the pressure on the complex [indiscernible] base, which is much more susceptible to macroeconomic pressures. Most stable trends in the mid and upper segments of the customer base along with inflation linked average price increases helped limit the decline in monthly average revenue per user to 2%.

This was despite the ongoing negative impact of load shedding on the number of active days. After adding 1.4 million new subscribers in FY ’23 and similar to previous periods which followed the FIFA World Cup, subscriber growth in the Rest of Africa was more subdued. And it’s as, as we expected. Subscriber growth was also affected by the impact of inflationary pressures on consumers in key markets like Nigeria as well as seasonality factors around the northern hemisphere football season.

On a 90-day basis, we added 100,000 customers to end the period at 50 million households, while the active subscriber base showed resilience despite the difficult macro conditions and was broadly stable at 8.9 million subscribers. Our objective is to pass through inflation linked pricing as that is typically what customers are prepared to absorb. As we mentioned earlier, we’re able to increase prices on average by 14% across all our markets.

Active days were down 4% due to challenging conditions in markets such as Zambia, which experienced power outages, and Nigeria where the economy is taking strain. Due to currency weaknesses in several markets, the blended ARPU was negatively impacted upon conversion and came in just above $6. And although we finished flat in terms of customer growth, we delivered significant growth in profitability.

Slide 16 reflects on the performance of KingMakers, our 49% owned spot betting business. Although similarly impacted by the weaker naira and challenging macro environment in Nigeria, KingMakers continued to deliver strong underlying operating momentum. The business delivered organic revenue growth of 22%, led by strong growth in its online sportsbook, which saw the active users increased 17%, and its revenue contribution grew by 40% year-on-year.

The weaker naira resulted in reported revenues increasing only 2% to NGN95 million or NGN1.8 billion. Encouragingly, the business delivered an EBITDA profit of 10 million, and the net loss has halved. The product and market expansion plans are fully funded with KingMakers having 134 million or 2.5 billion of cash at period end. We were pleased with the South African launch of SuperSportBet last week.

To allow it to gain immediate traction and build market share, SuperSportBet will leverage the SuperSport brand and the ecosystem. There will be pre game shows to build engagement and excitement around the product as well as live odds integration into selected games, which shows the synergy of our platforms. As South Africa is underpenetrated in terms of spot betting, we believe the combination of the successful KingMakers spot betting platform and the well-known SuperSport brand provides a great opportunity for the future revenue stream.

On Slide 17, we reflect on Irdeto, our technology business. Irdeto had a solid 6 months, delivering market share gains in its core media security business through customer wins and additional work with existing customers, such as the provision of its managed service solutions. They also had success in combative piracy, somewhat of a rising challenge globally, resulting in over 33,000 premium piracy services being disconnected.

Outside of media security, Irdeto is connected industry initiatives continue to pull momentum. Most notably in the keystone product line where Irdeto secured additional customers wins in the construction equipment space. Irdeto further solidified its position as a market leader by joining the RDK technical advisory board and by being recognized for its collaboration on to enable the rollout of plug and charge, a seamless and streamlined electric vehicle charging solution across Europe.

In conclusion on Slide 18, we delivered a resilient operational performance in highly challenging macro environment by proactively implementing initiatives to protect the economics of our business. We have a compelling growth strategy in place to deliver sustainable long-term returns and navigate short-term headwinds.

We are approaching an excellent point to deliver on this objective through our investment in both our streaming services and broader ecosystem of interactive, entertainment and consumer services. All this positions us well to capture long-term opportunities to expand our customer base to over 50 million in 5 years and deliver additional $1 million in revenue in the medium term.

his concludes my operational update. Let me now hand over to Tim to discuss our financial performance.

Tim Jacobs

Thank you, Calvo. On Slide 20, we start by highlighting the 4 areas where our teams have performed incredibly well over the past 6 months. Demonstrating the resilience of operations in the face of the challenging macro context.

In South Africa, we delivered a trading profit margin of 31%, which is a particularly credible result considering the impact of the persistent high levels of load shedding, the rising interest rates and difficult macro conditions on our customers and our business. Our Rest of Africa business was able to maintain a positive trading profit. This is a very strong performance if one takes into account the ZAR1.6 billion in currency headwinds that the business had to contend with in the first half of the year. Through tactical decisions and negotiations with our suppliers, our linear businesses were able to collectively reduce the level of spend on decoder subsidies by ZAR900 million on an organic basis, which I will unpack in more detail later.

And separate to this, Our cost savings of ZAR500 million means that we are well on track to exceed our original full year target of ZAR800 million and we have revised the target to ZAR1 billion.

Turning to Slide 21, we provide a high-level view of the major elements that impacted our trading profit performance. Talking to the waterfall at the bottom of the page and starting from left to right. In the comparative period, we generated ZAR6.1 billion in trading profit. Through tactical decisions around pricing, subsidy and a relentless cost saving discipline, we have delivered a ZAR1.1 billion organic improvement in the core business. That translates into an increase of 18% year-on-year on an organic like for like basis.

The additional investment in Showmax that includes customizing the new Peacock platform and hiring key staff to fill the new structure amounts to ZAR500 million. This translated into an organic trading profit of ZAR6.7 billion, an increase of 10% year-on-year. The major depreciation in currencies such as the naira, the Kwanza and the CD resulted in a ZAR1.7 billion foreign exchange hit to our profitability. After absorbing the currency loss, the reported trading profit closed 18% lower than last year at ZAR5 billion, but reflects a resilient operational performance as we drive the expansion of our service offering.

With that context, we turn to Slide 22 for our key financial metrics. The 4% organic top line growth was underpinned by a strong performance in the rest of Africa. The currency headwinds already discussed resulted in the top line contracting 1% on a reported basis. Our trading profit was up 10% organically and would have been up 18% if it wasn’t for our conscious decision to invest in future growth behind the new Showmax business.

The 1.7 billion currency impact resulted in the reported trading profit being 18% lower year-on-year. Core headline earnings, the board’s measure of the true underlying performance of the business declined by 5% on a reported basis, impacted by the same drivers weighing on trading profit, with some offset from realized gains on forward exchange contracts and lower tax and minorities in South Africa.

In response to shareholder inputs and a failure of the official and parallel rates in Nigeria to unify into a single rate, the group has introduced an adjusted core headline earnings metric. This metric is identical to the standard core headline earnings definition with the only exception being the inclusion of losses incurred on cash remittances in markets such as Nigeria. This reflects a 25% year-on-year improvement to ZAR1.5 billion. Our free cash flow was ZAR1.1 billion and was impacted by mainly the working capital investment made into the Showmax business.

On Slide 23, we look at subscriber numbers and the subscription revenue, the largest contributor to our top line. The chart on the left shows our 90-day active subscriber base, which was down 2%. The decision to remove the surprise and delight customers from the base, which Calvo mentioned earlier, had a limited financial impact as they were not generating revenue. Subscription revenues on the right were down 2% on a reported basis and up 3% organically.

In the rest of Africa, we benefited from an average 14% price increase, which translated into a similar organic growth rate for subscription revenues. The contribution from the segment on a reported basis was positively impacted by the translation of the rest of Africa’s dollar revenues into rand’s at an average rate of 18.75 compared to 16.61 to the dollar in the previous year.

However, this was fully negated by the 57% weakening of the naira, which not only resulted in a much lower dollar contribution from Nigeria, but in a flat growth on a reported basis for the segment. In South Africa, revenues were 3% lower as the benefit of price increases was offset by the lower number of active days per subscriber caused by the sustained load shedding and the tough macro environment that is resulting in an increasingly financially distressed customer. Showmax, disclosed separately for the first time, reported a healthy 25% growth in subscription revenues to ZAR500 million.

Turning to Slide 24, where we unpack our revenue performance by segment and type. The pressure on South African revenues due to load shedding and consumer pressure has already been covered, as has the growth in the rest of Africa. Our technology business, Irdeto, experienced growth in its external video segment off the back of improved OTT and managed services revenues as well as growth in the gaming and connected transport divisions.

This resulted in a 4% year-on-year organic improvement or 17% improvement on a nominal basis when considering the benefit of translating their dollar revenues with a weaker end. Showmax benefited from strong customer growth and delivered a 46% percent increase in revenues to ZAR600 million.

On the right-hand side, advertising revenues, which have been growing strongly in the rest of Africa, was affected by the weaker naira. This was partially offset by an uplift in South Africa, driven by the World Cups and a strong general entertainment content such as Shaka iLembe. Our insurance business increased premium income by a healthy 31%, while the 1% reduction in other revenues mainly relates to a decrease in decoder revenues owing to the tactical decision to reduce the level of subsidies in both the South Africa and Rest of Africa segments.

Slide 25 provides a summary of our segmental trading margins, most of which we already commented on earlier. The South African trading margin came in at 31% ahead of our expectations. The 3% margin delivered by the Rest of Africa business was a very strong result. Irdeto’s external revenue growth and tight cost controls partially offset lower decoder volumes and revenues in a post FIFA World Cup year.

The trading margin, which trended lower towards historical levels as a result, was also impacted by $2 million restructuring costs as the business adapts to changing media landscape that will benefit profitability in future periods. Trading losses in Showmax increased from ZAR279 million to ZAR800 million, all relating to the additional investments in preparation for the relaunch.

On Slide 26, we provide our standard trading profit bridge for the rest of Africa. The business enjoyed a material benefit from the inflationary price increases we put through across the majority of our core markets, demonstrating the benefits of a sustainable pricing policy on a scaled customer base. The segment benefited from tight cost control management, specifically around the decoder subsidies. This exceptional performance resulted in trading profit improvement of ZAR2.2 billion on an organic basis.

Currency headwinds amounted to a considerable ZAR1.6 billion after major foreign currency depreciation in markets like Nigeria, Angola, Kenya and Ghana, more than outweighed the benefit of translating their dollar revenue using a weaker rand. The net result was reported trading profit of ZAR300 million, a 230% improvement from the prior period.

Moving to Slide 27, we analyze our operating leverage and look at our cost savings for the year. As you know, our target is to generate positive operating leverage by maintaining the organic growth in revenue ahead of the organic growth in operating expenditure. Despite the margin pressure in South Africa and the additional investment in Showmax, we managed to achieve that. If you exclude our strategic investment in Showmax, our organic operating leverage would have been 4%. We delivered ZAR500 million in savings with major contributions coming from renegotiated contracts for International, general and entertainment content and sports rights as well as targeted savings around discretionary spend in noncritical areas like travel.

Moving to Slide 28. We provide more detail on our tactical move regarding subsidies and the results we are seeing thus far in both South Africa and the rest of Africa. The decision to reduce decoder subsidies was centered around driving better unit economics. This was achieved by negotiating reduced cost prices per decoder with our suppliers, while raising the selling prices of the decoders, resulting in a reduced subsidy per unit.

By removing the fully installed option on the Explora in South Africa and unbundling the sale of dish kits from the sale of decoders in our Rest of Africa markets, these economics were further improved. The successful re-launch of our DStv stream product means that customers have access to DStv without the need for extra hardware at a more affordable price point, while our credit offers on decoders also allow for more affordable access to our platform.

As a result, South Africa has seen a reduction in the level of replacement boxes sold from 51% in the prior year to 31% in the first half this year. This means a higher percentage of our boxes are going to new customers, which drives incremental revenue. It has also seen new customers on an equated basis growing 7% year-on-year, resulting in a better quality of customer entering our platform than we saw before. In the rest of Africa, we are also seeing the early signs of a better quality of subscriber being acquired through improving decay curves and higher equated new enables. The net benefit to the group has been ZAR900 million saving in decoder subsidies.

On Slide 29, we show our core headline earnings and new adjusted core headline earnings. Core headline earnings reflects a decline of 5% year-on-year as the sharp improvement in profitability in the Rest of Africa segment was more than offset by additional investment in Showmax and the lower net contribution from both [indiscernible] and South Africa.

At the bottom left of the slide, we show adjusted core headline earnings, which reflects strong growth of 25% year-on-year. That includes the impact of losses on cash remittances, net of taxes and minorities.

Slide 30 provides an update on our free cash flow, which totaled ZAR1.1 billion for the period. The waterfall graph highlights the key movements, which we unpack starting from the left. In the comparative period, we generated ZAR1.8 billion in free cash flow. The lower EBITDA and increased investment in content, especially ahead of the Showmax launch, resulted in a ZAR800 million net outflow. Other working capital movements totaled ZAR1 billion and includes non-recurring net realizable value adjustments on Football World Cup decoder inventory in the prior year as well as the benefit of lower content prepayments and timing of supplier payments in this period. Payments of ZAR1 billion were made to Peacock for customization of the platform ahead of the launch in the second half of the year.

Moving from cash flow to cash balances, we provide an update on our balance sheet on Slide 31. Our reported cash holdings have declined half and half from ZAR7.5 billion in financial year 2023 to ZAR5.6 billion at period end, after paying the Phuthuma Nathi dividend of ZAR1.4 billion in September.

This also includes ZAR500 million spent by the Group Share Trust to buy back shares in the open market to offset dilution from share awards. As mentioned before, we typically aim to retain a meaningful cash balance in the business ongoing operating requirements and financial flexibility. Undrawn facilities have remained at ZAR9 billion, of which ZAR5 billion is in group borrowing facilities.

We entered into a new ZAR12 billion term loan facilities last year, ZAR8 billion of which was drawn down at year-end to cover our short-term working capital needs and ZAR4 billion was available to support ongoing business requirements. In October 2023, the remaining ZAR4 billion of the ZAR12 billion term loan facility was drawn down. This has been disclosed as a subsequent event in our financial statements.

Our cash plus undrawn facilities provide liquidity to the group of ZAR14.6 billion. Not all cash is available due to ZAR3.3 billion of existing cash commitments. That reduces available liquidity to ZAR11.3 billion, which provides financial flexibility. Our debt position has reduced slightly to ZAR8.2 billion after ZAR300 million was used to repay our previous working capital loan. Our leverage ratio at 1.3 times remains well within prudential limits.

Let’s turn to Slide 33 for our outlook for the rest of the year. The second half of the year will be a key period as we progress our journey to expand our ecosystem beyond Africa’s leading linear pay television operator into a broader ecosystem of interactive entertainment and consumer services. The focus remains on driving further efficiencies in operating expenditure as well as working capital and CapEx decisions to ensure consistent and optimal returns on all capital deployed.

At the same time, we continue to seek ways to support or improve the economics of the business through pricing decisions, optimizing customer mix and content monetization as well as calibrating decoder subsidies according to the macroeconomic backdrop. More specifically, we retain our full year mid-20s guidance for the South African business as the second half of the year is typically affected by higher seasonal costs, but we are targeting the upper end of this range.

The Rest of Africa team remains focused on maintaining profitability and reducing the funding required from group into the second half. We are looking to achieve our revised cost saving target of ZAR1 billion. We had initially set financial year ’24 as the year for free cash flow breakeven. However, given the significant setback from currency depreciations, we have now set financial year 2025 as the new target.

And as we have touched on, we’re excited for the upcoming relaunch of Showmax in February 2024, which will enable us to expand our customer base to 50 million over the next 5 years, underpinning our long-term growth.

To conclude on Slide 34, we have a compelling growth strategy in place, which is partly driven by the opportunity to capture sustainable long-term growth through our targeted investment in streaming and partly by the need to absorb increased external economic pressure on the business and its customers in the short-term. Our priority is to navigate both sets of demands to ensure the group is able to operate sustainably through the current economic cycle and long into the future, while delivering attractive shareholder returns.

The relaunch of Showmax combined with KingMakers entry into the South African market with SuperSportBet and Moment’s platform launch are all important milestones as we accelerate growth and drive additional scale, creating a world of more for customers and additional value for shareholders.

So to summarize, we are managing the macro challenges, progressing our new business initiatives to stay ahead of the curve and are confident that we will deliver long-term sustainable shareholder value.

That concludes the presentation for today and we are now ready to take some questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from Jared Hoover of RMB Morgan Stanley.

Jared Hoover

Afternoon, Calvo, Tim and team and thanks for the call. I’ve got a few questions on the South Africa business to start off with, please. I guess my first is about revenue progression and what I’m trying to figure out is how we should think about revenue progression of the South Africa business into the second half of the year and into 2025, given that you are going to be lapping a soft load shedding impacted base. Load shedding looks like it’s coming down below Stage 4 in your outlook and then you also have an offsetting factor of decoder subsidies coming down. So that’s my first question.

My second is on the South African margin and I just wanted to make sure that I’m crystal clear on your guidance. I think you just mentioned Tim that you’re targeting the upper end of that mid-20 guidance, for 2024. So does that mean that you’re targeting much closer to 27.5%?

And then my third question, also related to South Africa and the margin. Looking into 2025, is it reasonable for me to expect the margin to come in closer to 20% than the mid 25% range that you’re guiding for this year, purely on the basis of your dollar cost space being reset at least the ZAR17.20 that you are hedging some of your dollar costs at in your outlook? I’ll leave it there for now. Thanks.

Calvo Mawela

Yes. Maybe let me start and then Tim will follow through. In terms of the revenue progression from the South African businesses, we have already mentioned we’re putting, increasing our pricing across our products in South Africa. We have launched new product in DStv stream which is gaining traction in the market and we are seeing new subscribers that have never been on DStv taking up this product which are young people who are sitting in apartments, which bodes well for the growth of the South African business.

The other thing to look into is that if load shedding definitely subside as we are seeing now. We think we should be able to get customers coming back. So that would be my answer to the first question. Tim?

Tim Jacobs

Okay. So the answer to the margin question is I can’t be as specific as you want me to be. We’ve given a rate, we’ve given, I think, quite a firm steer that we think is going to be in the mid-20s and in the upper end of the range. But to get as specific as confirming the number that you quoted, Jared, I think is a little bit too specific for especially given the amount of volatility that we’re seeing in the marketplace. And while we agree with you that the second half at the moment looks like load shedding will ease up. There’s no guarantees and there’s no assurances that that will actually happen. And so we’d be reluctant to be as precise as you’re asking us to do.

And in terms of the margin for the second half of the year, I think that’s just really a kind of a mathematical equation. You can apply, whatever you think, that outcome is we’ve steered you to the top end of the mid-20s range. And whatever margin your model needs to get us, to get your model to that number, I suppose, would have to work in your own spreadsheet.

Jared Hoover

And just the margin on 2025, is it reasonable for me to expect that to come in closer to 20% than the mid-20s, given the dollar cost increase?

Calvo Mawela

Yes. So look, I think the margin for 2025, firstly, this is way too early for us to give a steer to the market. As a general rule, we would come out and give some kind of indication as to where we think that will come out when we get closer to the end of the financial year. Remembering that, if you just think about the progression of our business, we identified that load shedding was having a material impact on our business in the last quarter of last year. And when we came to the markets and we gave the revised margin guidance one of the reasons for that was because we said that we had limited time for the business to react to such a material movement in our top-line.

If you look at the operational performance in the first half of this year the core business is kind of really responsible. And as a group, we’re actually up 18%. So in the context of that, I mean, what we expect to be doing in the second half of the year is to continue with that momentum. The South African business in particular is looking at the stream product. They’re looking at a lot of retention work. We’re moving into the festive season, which is always a better part of the year for us. And if the load shedding does ease up as you kind of indicated that you think it’s going to.

We think that there is some good opportunity for us to continue with that stabilization of the top-line. And then the cost saving efforts that we’ve put into the business, of course, are allowed to then mature. And of course, we’re targeting new cost saving efforts in the second half of the year. We have raised our guidance on cost saving ZAR1 billion for the full year. So that means that we’re looking to at least double the cost saving effort that we did in the first half of the year.

So, I think you need to then take all of those momentum and directional kind of steers that we’re giving for the second half of this year. That will then translate into a position that we will take into next year. Granted, we do have a short hedge book, so we are only covered at the moment into the early part of next year. But we’re well aware of the challenges that the currencies are posing on the business. And we are managing the elements that are within our control as aggressively as we can to make sure that we offset those impacts.

Operator

[Operator Instructions] We do have a follow-up from Jared. Please go ahead.

Jared Hoover

Hi, guys. I’m glad I managed to get back on so quickly. I guess my next question is on rest of Africa. You’re targeting free cash flow breakeven next year. I think that’s a pretty good outcome given where the currencies have moved to. Obviously, a lot of that is based on your ability to take out costs from the business. But are you able to share maybe high level some of the assumptions underpinning that? If you could, maybe the range of naira that you are forecasting in your assumption set to get you to free cash flow breakeven? I guess that’s my first question, on Rest of Africa.

My second is on Shoremax. Now, you currently have about 22 million subs at a group level. And I think there’s some commentary in your results booklet pointing to you looking to get that up to about 50 million in the next 5 years. Obviously, some of that will be driven by increased pay-TV or linear pay-TV penetration, very high-level, I guess, I could see that getting to about 30 million subscribers in the next 5 years. So that means the remaining 20 million is probably in your OTT platform on Showmax 2.0. Is my maths horribly wrong on that, or, are my ballpark in the range that you could see about 20 million Showmax 2.0 subscribers over the next 5 years?

And then my third question is just on costs. I mean, you’ve spoken quite extensively about your ability to pull back on subsidies. But I also picked up some commentary around the moment, reaching commercial operations in the second half of 2024. And if I recall, I think you mentioned there’s about a $60 million potential cost out opportunity, that moment brings to the party. Is any of that being baked in to the outlook at the moment? And how should I think about that? I’ll leave it there for now. Thanks.

Calvo Mawela

Yes. Let me start with the Showmax’s question and then Tim will take the financial questions. Just on Showmax, I think how you need to think about it is on the linear side, you’ve already seen how the business has performed in terms of growth. Out of that growth, then you will be able to calculate more or less as to where we think the remainder of the growth is going to come from as a result of OTT. What we are doing, if you look at Showmax 2.0, is that we are bringing in the EPL in your pocket. EPL on the African continent is like a religion. I think we are going to see a massive uptake in terms of the youth because they just love football. And the second element that we are bringing in is the ramp up in local content as well as the best of interest of content as I’ve already presented about.

We believe we’ve got a strong compelling OTT proposition that we’re bringing to the market. And that’s why we believe very strongly that we will be able to reach the 50 million mark in terms of subscribers and whilst at the same time generating $1 million in revenues. Calvo, should I take the second or the first part of the question?

Okay. So in terms of the breakeven guidance on free cash flow, so remember, there’s a couple of assumptions, right? In addition to the discipline that we have around taking costs out of the business, for example, we are looking very carefully at the subsidies that we currently deploying in the business. The Rest of Africa team started the reduction in subsidies fairly late in the second half. So we’re expecting the momentum that we saw in the first half in terms of overall group subsidy cuts to continue into the second half and a reasonable amount of that should be sitting in the Rest of Africa business. That’s the first part.

And of course, we’re targeting other cost savings as well as we always do. There’s a number of content renewals that come up in the second half of the year. We’d expect to negotiate very hard on those renewals. And then importantly, we’ve already mentioned that we have put second price increases into the rest of African markets. So, a number of markets have got a second one. And in particular, in November, Nigeria got a 19% price increase.

So all of these factors kind of play into the outlook that says we get your free cash flow rate even by the end of next financial year. Keeping in mind that doesn’t mean that the business is self-funding yet, because there are certain expenses that we have to take below the line, like cash traction rates at the parallel market.

But what we do have as an assumption in that modeling is that the naira does weaken from where it is current, well, where it was at the half year. I can’t give you the precise rates that we’re using at this point. But it does we do weaken that into our forecast model.

Tim Jacobs

The last question that you asked around moment and the $6 million that you spoke about in terms of the costs as a result of integration of third-party payments. What we see happening is that as soon as movements start operating, there will be a decrease, but the decrease will not be one shot where the $60 million goes down to zero. It will ramp up as we integrate this third-party payment into the moment platform and we’ll see a reduction coming through.

Calvo Mawela

And it will never be 100% of the $60 million, because moment earns a commission themselves. But I would guess that we could, we are probably expecting at least a third of that to be a saving as we move into the future.

Operator

I would now like to hand over to Meloy Horn for any questions of the webcast.

Meloy Horn

I’m going to group the questions together, because we’ve received questions that’s fairly similar. From [indiscernible] Capital, we had a question about, whether we could provide guidance on the expected second half losses for Showmax and the shape of the J-Curve over the next few years?

Then we have a question from Nedbank CIB, asking about the rate at which we extract money from Nigeria, and how dependent we are on the Nigerian cash flows to fund the group commitments, including dividends. And also, then asking the higher rate to get cash out compared to MTN.

And then, we have a question from Allweather, asking about this is clear on our second half free cash flow outlook and whether we would consider share buybacks given the current depressed levels. And a follow-on question whether we actually have any opinion on the share valuation at this stage, also linked into potentially a share buyback.

So I think those are the questions. Last question without the capital market share, the trailing profit and guidance pull standard I think that question we can take over the first one and after —

Tim Jacobs

Okay. So let me start off with the Showmax J-curve question. So we’re very comfortable that the guidance we provided the Capital Markets Day remains intact. Although we do expect the current year to come out in at the bottom end of that range, partly because the launch of the Showmax platform is now scheduled for February this year. And that means that a lot of the content amortization will only be for 2 months of the financial year.

We also expect as a general principle, we expect a flatter J-curve than seen in a lot of the international OTC platforms. So we see a very, a kind of a much flatter and a much quicker progression to the breakeven position that we still believe is going to be in roughly 3 to 4 years’ time from launch. So I hope that answers the question. And of course, Calvo has already spoken about our ambition to get you $1 billion of turnover within 5 years in this business.

Then I think the second question related to the extraction of cash out of Nigeria. So we’ve averaged the cash extraction at about NGN790 in the first 6 months. If we look more recently as we got kind of closer to the half year that we were sitting at NGN1,025, but we are seeing a lot of volatility in the naira in the last month. So it blew out to kind of NGN1,300, then it pull back to close to NGN1,000 and then kind of weakened to just over NGN1,100. So we’re seeing significant volatility. So it’s very difficult to predict at the moment and as that naira rate moves around in the parallel market, we’re also seeing that there’s limited liquidity. So it’s not just that the rate’s moving around, but also the propensity for people to put money on the market, in such a volatile climate seems to be challenging at the moment.

In terms of what the MTN rates? Yes, so look, I mean, guys, it’s always difficult for us to comment on MTN and how they get rates out and what rate they’re going to get the money out at. Remembering that firstly, they’re in a different industry to us in Nigeria. Secondly, they’re listed. So I think there are dispensations that they get from the Central Bank that we potentially going to join. And we also understand that a lot of the remittances is in the form of dividends. And our understanding is that if you are declaring dividends that you also get certain special dispensations in terms of the rates that you can extract money at, which unfortunately we don’t enjoy at the moment. But I can’t comment specifically on the rate that MTN get the money up unfortunately.

Meloy Horn

We’ve got some free cash flow outlook and then the potential buybacks.

Tim Jacobs

Okay. So on the free cash flow outlook, I think there are so many moving parts at the moment, right, that it’s always a difficult one to call. I think what I can steer is that in the first half of the year, we’ve delivered this ZAR1 billion profit. A lot of where we’re going to end up in the rest of the year is centered around a number of key themes, okay? One of them in South Africa is load shedding.

The second outcome is the currencies that we’ve seen happening in the Rest of Africa. Why that’s important is because that determines the level of funding that the Rest of Africa business will need from the group. And lastly, it’s got to do with the way that these price increases that we are putting into the business, how much these are going to stick and how much customers are going to kind of stay with us through the journey.

The last part of course is the part that we’ve already committed to uplifting the targets for the year, and that’s on the cost savings side. So we expect in the second half of the year to see a sustained improvement or sustained level of savings in the subsidy line, across the 2 businesses. And we’re also expecting the absolute level of cost saving, that we achieved in the first half of the year to at least be achieved in the second half as well. So it’s very difficult at the moment to call and give you guys guidance.

I mean obviously, we have an internal view, but there’s simply too many moving parts to give a firm view as to where the cash flow may end up at the end of the financial year. And I think when we came to the markets with our full year results. And we mentioned that we’re not going to pay a dividend. I think what we tried to indicate very firmly to the market was that we’re going to try and pay this, we’re going to try and resume the dividend as soon as we absolutely can. That’s the first thing.

And the second thing is given this current level of the share price, I think if we get to the position where we do have excess cash and we’re going to return it to shareholders. We would certainly look very carefully at whether a dividend or share buyback was the most appropriate way to do that because of the current share price, we think that is a very strong buying opportunity.

Meloy Horn

Chris, I’ve got no more questions on my side. Don’t know if there’s anybody else that’s queued up on your side.

Operator

No further questions on the conference call.

Meloy Horn

Okay. I’m going to then hand over to Calvo to conclude.

Calvo Mawela

Thank you, everyone. We hope you found today’s session useful and that you share our excitement about the future we’re creating. We appreciate your time today, and I’m looking forward to engaging with you further over the coming weeks. On behalf of MultiChoice, I would also like to wish you — all of you and your families will have over the coming festive season, and all of the best for the year here. Thank you.

Operator

Thank you very much.