Patel: ‘MultiChoice is set to become a Top 40 JSE-listed company’

JOHANNESBURG — Naspers' announcement that it intends to separately list and unbundle its video entertainment business as MultiChoice Group on the JSE has been seen as Naspers' first step in unlocking its stock discount in relation to its 31% Tencent stake. While Netflix and Amazon are starting to eat MultiChoice's lunch in South Africa, MultiChoice is still not a bad business by any stretch. For the year ended March, it generated revenues of R47.1bn and trading profits of R6.1 bn. In this teleconference call, Naspers CEO Bob van Dijk along with Naspers Video Entertainment CEO, Imtiaz Patel, explain the rationale for the unbundling. – Gareth van Zyl.Hello everyone and thank you for joining us to discuss Naspers' announcement of our intention to list our Video Entertainment business specifically on the Johannesburg Stock Exchange (JSE) and simultaneously to unbundle the shares in this business to our shareholders. On the conference call with me, to discuss the announcement, is Bob van Dijk, CEO of Naspers, and Imtiaz Patel, CEO of Video Entertainment, and Calvo Mawela, CEO of MultiChoice SA. Bob and Imtiaz will provide an overview of the announcement. Thereafter we will move to a Q&A session, which the conference call operator will facilitate. With that, over to you, Bob..___STEADY_PAYWALL___.Bob van Dijk: Yes, thanks and good morning everyone. Thanks a lot for joining the call today. I'm sure you've seen the announcement by now so we wanted to spend most of the time on the questions that you may have. So, as Shamila mentioned, yesterday we announced our intention to list our Video Entertainment business separately on the JSE. At the same time, we'll unbundle the shares in this business to our shareholders. So, maybe there is an important point to clarify, or two important points to clarify: one, that we don't intend to raise new capital with the listing. It's going to be an unbundling to Naspers shareholders of the of the MultiChoice Group, and Naspers will no longer be a shareholder in the business afterwards..So, the very strong performance of the SA business and the improving prospect of the Sub-Saharan business has actually made this possible, at this point in time. The new company will be called MultiChoice Group and it will include MultiChoice SA, MultiChoice Africa, ShowMax Africa and Irdeto. Provided that we get all the required approvals, we anticipate that MultiChoice Group will list on the JSE somewhere in the first half of the year 2019. So, this transaction is a big step for Naspers and we continue to evolve into a global internet company. We expect that the listing and unbundling of the MultiChoice Group will unlock value for our shareholders and at the same time, create a great, empowered top 40 JSE listed African entertainment company, and should also, as Naspers, help in addressing the discount that we've been having..More importantly, it's also expected to unlock further value for one of the most successful broad-based BEE schemes in SA, which has created significant value for Phuthuma Nathi shareholders, and Imtiaz will cover more about that later. So, as Naspers we will continue to invest in SA. In e-commerce, in particular, we have a number of really strong assets, like Takealot, Mr D Food, PayU, OLX, Property24 and Autotrader SA, amongst others. To give you an idea, in the last 3 years we've invested about R7bn in M&A and developing these businesses. Just in the last year we invested R3.3bn in our e-commerce businesses in SA..In fact, we have some real news there as well. This morning we announced an R1.4bn in investment in SA in the specialised car buying service in WeBuyCars, which we are extremely excited about. We also retain our primary listing on the JSE, as well as our interest in Media24. So, I am very confident that this transaction will add value to the SA economy and to our shareholders, and will re-enforce our ongoing commitment to transformation through our offer to the Phuthuma Nathi shareholders. And Imtiaz, if you wouldn't mind providing further information about the Video Entertainment business..Imtiaz Patel: Certainly, Bob – thank you very much. Morning everybody, we as management of MultiChoice and Video Entertainment are extremely excited about the prospects for the MultiChoice Group. The listing and unbundling of the Video Entertainment business is expected to create a leading entertainment business on the JSE, and it's a company that we believe, is currently profitable and cash generative. It is one of the fastest growing pay-TV operators globally and its multi-platform business has a presence across the African Continent entertaining 13.5 million households. In the last year, the business added 1.5 million subscribers and we generated revenue of R47.1bn and we made a trading profit of R6.1bn..Video Entertainment's performance over the years has also resulted in one of the most successful local empowerment schemes in SA. We believe the transaction places further value for Phuthuma Nathi shareholders in two ways. Firstly, prior to the unbundling, Naspers intends to allocate an additional 5% stake in MultiChoice SA to Phuthuma Nathi shareholders for no consideration. Practically this means that the Phuthuma Nathi shareholder's interest in MultiChoice SA and its dividend flows is expected to increase by 25%. The additional 5% stake in MultiChoice SA is designed to re-enforce MultiChoice Group's commitment to BEE to increase Phuthuma Nathi's upside in future value creation, and to ensure the continued compliance with the regulatory requirements, post the unbundling..Secondly, post-listing and subject to obtaining the requisites approval, it is our ambition to enable 25% of the Phuthuma Nathi shareholders original holding. That is, before the allocation of the additional 5%, it will be exchanged for MultiChoice Group shares that will be freely tradable. From our engagements with the Phuthuma Nathi shareholders, we know that their ability to unlock value through more, freely tradable shares is an important issue. The MultiChoice Group will continue to offer an unmatched selection of local and original content, as well as a world-class sports offering. The business is also positioning itself for the future and for changes in technology by offering online streaming services. We are seeing a good take up of our offerings, including ShowMax and DStv Now..Looking ahead, there are good growth opportunities for the new MultiChoice Group. As mentioned, we saw substantial subscriber growth last year and we have seen continued momentum in the current year. We have stabilised losses in our Africa business or the rest of Africa business by re-invigorating subscriber growth. In fact, in the last 2.5 years we have grown our African subscriber base by 50%. We continue to contain costs and expect the business to return to profitability. We believe there is significant market potential in Africa. It is one of the fastest growing Continents, by both GDP and population. Its middle class is growing rapidly, while penetration of Video Entertainment Services remains relatively low..Naspers has also agreed that the MultiChoice Group will be unbundled with limited leverage, which means that the MultiChoice Group is expected to have the necessary financial flexibility to pursue its ambitions. We're confident about our future. The combination of MultiChoice's reach as well the fact that ShowMax and DStv Now has cutting-edge internet television service. Also, Inderto's 360-degrees security suite will provide a unique offering. Our experienced and diverse leadership team is well positioned to take the MultiChoice Group forward. Thank you very much, and I'll hand you back to Shamila..Thank you, Imtiaz. I would now like to hand you back to the moderators so that we can take questions..Question from Duncan McLeod, TechCentral: My question is, what was the strategic thinking in Naspers not retaining its stake in the MultiChoice Group? My second question is, what does this mean for the ShowMax operations outside of Africa?.Bob van Dijk: Right, Duncan, I can have a go at answering both questions. So, for Naspers there are a number of considerations. The most important one is that we have been, and you will have seen over the last 3 years, transitioning to be fully an online consumer technology business. And this, for us marks a big step towards completing that journey and retaining a stake actually is not consistent with that. Another key, strategic consideration is around how we think the business was underappreciated in the overall value of Naspers and we really want to crystallise this value by putting the business out there with an independent listing and show how attractive this business is. I think Imtiaz just mentioned something about it. It's a top-10 global pay-TV company. It's actually, one of the fastest growing pay-TV companies in the world and I think particularly, the opportunity on the African Continent for further growth is there, right and if you just look at the subscriber growth in the last year. So, I think that is a very positive story. .On your question about ShowMax – outside of Africa maybe look at the background there. That business is actually run by a separate team from Europe. So, it's different people running that business and there is limited synergy between the businesses so, that will go off on a stand-alone path..Questions: This is Lindy from Mail & Guardian. I would just like to understand how do you think this change for the MultiChoice Group is going to position it to compete against other video entertainment players from the likes of Netflix, etc., and how do you compete against those offerings?.Imtiaz Patel: Lindy, I'll have a go and maybe Calvo can add. Yes, look, I think the most important thing is we've got, as I said earlier, we've got a subscriber base of 13.5 million homes that we reach on the African Continent. Secondly, we've probably got an unmatched capability in the production of local content. That is a very big differentiator and we've built this capability up over many years. Thirdly, we have an unrivalled, unmatched, offering of sports content. Fourthly, we are offering a DStv Now service, which is growing exceptionally well, as broadband penetration increases across the continent. ShowMax in itself is a stand-alone online platform, with which you have quite a compelling offering. But as it stands now we have the opportunity to do more with ShowMax in terms of the current suite of capabilities, which I've explained in point 1, 2, and 3, and we can deploy that as and when we feel the opportunity is there to fully deploy. We have a lot of plans in place for enhancing our technological capability, in terms of more over-the-top product. So, we think we are well poised as broadband unfolds, to compete on an equal footing with any other over-the-top operator. Calvo, do you have anything to add?.Calvo Mawela: I just wanted to add that in terms of our investment into online offering we continue to improve and to continue to invest in this offering to make sure that it continues to do well. If you look at us going into the future, there is a lot of focus on our online offering to make sure that it's the best, ever, that it can be and our continued investment is beginning to show results in terms of how we go forward as well. So, there is a very good focus to make sure that our online offering gets stronger and stronger as we continue..Question from McLeod: I was just wondering if you guys have any thoughts on the sort of valuation that MultiChoice Group might attract?.Bob van Dijk: We try not to speculate about what the market will do, which is a very difficult thing to do. I think post the news announcement several analysts have come out with numbers that have a fairly wide range. So, I think we are not in a position to second-guess the market. I think generally, there's a lot of support for the business and I think the points that Imtiaz made around strong growth, the turnaround in Sub-Saharan Africa is very strong. The subscriber growth in Sub-Saharan Africa makes this… It's an important combination so, you have a cash generative business that is showing strong growth in its core business units, and is also developing a strong online proposition. So, I think those factors combined will really help this be a valuable business and also, a growth story going forward..Imtiaz Patel: Duncan, we did say that we anticipate this to be a top-40 listed company..Thanks everyone for your time on the call and if you have any questions please just send us an email or give us a call. Thanks so much for your time.

Patel: ‘MultiChoice is set to become a Top 40 JSE-listed company’

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