Multichoice Group Limited
MultiChoice Group Limited (formerly MultiChoice Group Proprietary Limited and K2018473845 (South Africa) Proprietary Limited) (Incorporated in the Republic of South Africa) (Registration number 2018/473845/06) JSE share code: MCG ISIN: ZAE000265971 (the “Company”)
PRE-LISTING STATEMENT
The definitions and interpretations contained in Annexe 20 to this Pre-listing Statement apply to this entire document, including the cover page, except where the context indicates a contrary intention. This Pre-listing Statement has been prepared, and issued in compliance with the JSE Listings Requirements for the purposes of providing information to Shareholders with regard to the business and affairs of the Company and the Group and has been prepared on the basis that the Unbundling shall become effective and be implemented. This Pre‑listing Statement relates to the Admission of the issued Shares on the main board of the JSE by introduction as a primary listing. The JSE has approved the Admission of all of the Company’s issued, and to be issued, Shares in the “Broadcasting and Entertainment” sector of the JSE under the abbreviated name “MC Group” and share code “MCG”. It is expected that the Admission and unconditional dealings in the Shares will commence with effect from the commencement of trading on Wednesday, 27 February 2019. The international securities identification number (“ISIN”) for the Shares is ZAE000265971. There will not be any stabilisation activity in relation to the Shares. The Shares will only be traded on the JSE in Dematerialised or Uncertificated Form and accordingly all holders of Shares (“Shareholders”) who hold their Shares in Certificated Form will have to dematerialise their Shares should they wish to trade on the JSE. No Shares have been marketed or offered to, nor are any available for purchase, in whole or in part, to any person in any jurisdiction in connection with the Admission. This Pre‑listing Statement does not constitute an offer or invitation to any person to subscribe for or purchase any Shares in the Company in any jurisdiction including an offer to the public or section of the public in any jurisdiction, and is issued in compliance with the JSE Listings Requirements, for the purposes of providing information to Naspers Shareholders with regard to the Company and the Group. Consequently, this Pre‑listing Statement does not, nor does it intend to, constitute a “registered prospectus”, as contemplated by the South African Companies Act, 71 of 2008 (as amended) (“Companies Act”). As a result, this Pre-listing Statement does not comply with the substance and form requirements for prospectuses set out in the Companies Act and the South African Companies Regulations of 2011 and has not been approved by, and/or registered with, the South African Companies and Intellectual Property Commission, or any other South African authority. The JSE has approved this Pre-listing Statement. The Company’s issued share capital comprised 438 837 468 Shares, with a stated capital of R0, on the Last Practicable Date and is expected to comprise 438 837 468 Shares with a stated capital of R0 on the date of Admission. No Shares are, or on the Admission Date, are expected to be, held in treasury by the Group. The Directors, whose names are set out in “Part IX – Directors, Senior Management and Corporate Governance” of this Pre‑listing Statement, collectively and individually, accept full responsibility for the accuracy of the information provided in this Pre-listing Statement and certify that, to the best of their knowledge and belief there are no other facts, the omission of which would make any statement in this Pre‑listing Statement false or misleading, and confirm that they have made all reasonable enquiries in this regard and confirm that this Pre‑listing Statement contains all information required by the JSE Listings Requirements. Shareholders that are Foreign Persons or Foreign Entities (“Foreign Shareholders”) should take note of the variable entitlement to exercise voting rights attaching to Shares held by Foreign Shareholders in certain circumstances in order to ensure compliance by the Group with the Foreign Control Restrictions. In particular, if at a meeting of Shareholders Foreign Shareholders hold in excess of 20% of the voting rights attaching to the Shares, the Foreign Shareholders will be entitled to exercise only a pro rata portion of the aggregate voting rights attached to the Shares held by all Foreign Shareholders at such time such that the aggregate voting rights entitled to be exercised by Foreign Shareholders will not exceed 20% of the aggregate voting rights entitled to be exercised by Shareholders. Please refer to “Part XIII – Incorporation and Share Capital” which contains a summary of the variable voting rights attaching to Shares held by Foreign Shareholders and Annexe 16 setting out the salient provisions of the Company MOI, including the terms attaching to Shares and the variable voting rights in relation to Foreign Shareholders. The release, publication or distribution of this Pre‑listing Statement in jurisdictions other than South Africa may be restricted by law and therefore persons in whose possession this Pre‑listing Statement comes should inform themselves about, and observe, such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws or regulations of any such jurisdiction. THIS PRE‑LISTING STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR ISSUE, OR THE SOLICITATION OF ANY VOTE OR APPROVAL OR AN OFFER TO BUY OR SUBSCRIBE FOR, ANY SECURITY, NOR SHALL THERE BE ANY SALE, ISSUANCE, TRANSFER OR DELIVERY OF THE SECURITIES REFERRED TO IN THIS PRE‑LISTING STATEMENT IN ANY JURISDICTION IN CONTRAVENTION OF APPLICABLE LAW, OR WHERE FURTHER ACTION IS REQUIRED FOR SUCH PURPOSE. Date of Issue: 21 January 2019
Joint Financial Adviser to Naspers Joint Financial Adviser to Naspers Sponsor
South African legal adviser to Naspers Auditor and independent Transfer Secretaries and the Company reporting accountant No representation or warranty, express or implied, is made by the Joint Financial Advisers as to the accuracy, completeness or verification of the information set out in this Pre‑listing Statement, and nothing contained in this Pre‑listing Statement is, or shall be relied upon, as a promise or representation in this respect, whether as to the past or the future. The Joint Financial Advisers assume no responsibility for this Pre‑listing Statement’s accuracy, completeness or verification and accordingly disclaim, to the fullest extent permitted by applicable law and regulation, any and all liability whether arising in delict, tort, contract or otherwise which they might otherwise be found to have in respect of this Pre‑listing Statement or any such statement. Shareholders (i) should not rely on the Joint Financial Advisers or any person affiliated with the Joint Financial Advisers in connection with any investigation of the accuracy of any information contained in this Pre‑listing Statement, (ii) should rely only on the information contained in this Pre‑listing Statement and (iii) are advised that no person has been authorised to give any information or to make any representation concerning the Company or its subsidiaries (other than as contained in this Pre‑listing Statement), and, if given or made, any such other information or representation should not be relied upon as having been authorised by the Company or the Joint Financial Advisers. The advisers to the Company as set out herein are acting exclusively for the Company and no one else in connection with the Admission. They will not regard any other person (whether or not a recipient of this Pre‑listing Statement) as their respective customers in relation to the Admission and will not be responsible to anyone other than the Company for providing the protections afforded to their respective customers nor for giving advice in relation to the Admission or any transaction or arrangement referred to in this Pre‑listing Statement. The auditors and independent reporting accountants, whose reports are contained in this Pre‑listing Statement, have given and have not, prior to the date of this Pre‑listing Statement, withdrawn their written consent to the inclusion of each of their reports in the form and context in which they appear herein. Each of the legal advisers, the auditors and independent reporting accountants, the Joint Financial Advisers and the Sponsor and other professional advisers named in this Pre‑listing Statement have consented in writing to acting in those capacities as stated in this Pre‑listing Statement, and to their names being stated in this Pre‑listing Statement, and have not withdrawn their consent prior to the publication of this Pre‑listing Statement. This Pre‑listing Statement is only available in English and copies thereof may be obtained by Shareholders during Business Hours from Monday, 21 January 2019 until Friday, 1 March 2019 from the Company and the Sponsor at their respective physical addresses which appear in “Part I – Corporate information” on page 7. A list of risk factors relating to the Company and the Shares is set out in “Part IV – Risk Factors” beginning on page 11 of this Pre‑listing Statement.
2 IMPORTANT INFORMATION
General In making an investment decision, each Shareholder must rely on his/her/its own examination, analysis and enquiry of the Company, the Shares and the terms and conditions of the Admission, including the merits and risks involved. Shareholders should not treat the contents of this Pre‑listing Statement as advice relating to legal, taxation, investment or any other matters and should consult their own professional advisers concerning the consequences of them receiving, acquiring, holding or disposing of Shares. Shareholders should inform themselves as to, among other matters: • the legal requirements within their own countries for the receipt, acquisition, purchase, holding, transfer or disposal of Shares; • any foreign exchange restrictions applicable to the receipt, acquisition, purchase, holding, transfer or disposal of Shares which they might encounter; and • the income and other tax consequences which may apply to them, in both South Africa and their jurisdiction of residence, as a result of the receipt, acquisition, purchase, holding, transfer or disposal of Shares. Shareholders must rely upon their own representatives, including their own legal advisers and accountants, and not those of the Company, as to legal, tax, investment or any other related matters concerning the Company and an investment therein. The information contained in this Pre‑listing Statement constitutes factual information as contemplated in section 1(3)(a) of the South African Financial Advisory and Intermediary Services Act, 37 of 2002 (as amended) (“FAIS Act”) and should not be construed as an express or implied recommendation, guidance or proposal that any particular transaction in respect of the Shares is appropriate to the particular investment objectives, financial situations or needs of a Shareholder. Apart from the responsibilities and liabilities, if any, which may be imposed on the Sponsor or Joint Financial Advisers in terms of applicable laws and regulations, none of the Sponsor, Joint Financial Advisers or any person affiliated with each of them accepts any responsibility whatsoever, nor makes any representation or warranty, express or implied, in respect of the contents of this Pre‑listing Statement and/or any information incorporated by reference, including its accuracy, completeness or verification or for any other statement made or purported to be made by any of them, or on behalf of them, in connection with the Naspers Group, the Company, the Group, the Admission and/or the Unbundling and nothing in this Pre‑listing Statement is or shall be relied upon as a promise or representation in this respect, whether as to the past or future. The Sponsor and Joint Financial Advisers accordingly disclaim, to the fullest extent permitted by applicable law, all and any responsibility and liability whatsoever, whether arising in delict, tort, contract or otherwise (save as referred to above) which either might otherwise have in respect of this Pre‑listing Statement. The Sponsor is acting exclusively for the Company and the Joint Financial Advisers are acting exclusively for Naspers and no one else in connection with the Admission. They will not regard any other person (whether or not a recipient of this Pre‑listing Statement) as their respective customers in relation to the Admission and will not be responsible to anyone other than Naspers and the Company for providing the protections afforded to their respective customers nor for giving advice in relation to the Admission or any transaction or arrangement referred to in this Pre‑listing Statement. The statements contained in this Pre-listing Statement are made as at the Last Practicable Date, unless some other time is specified in relation to them, and issuance of this Pre-listing Statement shall not give rise to any implication that there has been no change in the facts set forth herein since such date. Nothing contained in this Pre-listing Statement shall be deemed to be a forecast, projection or estimate of the future financial performance of the Company or the Group except where otherwise stated. The statements contained in this Pre-listing Statement are also made on the basis of the Group as it will exist on implementation of the Admission and the Unbundling.
Notice to Shareholders This Pre‑listing Statement does not constitute an offer to sell or issue, or the solicitation of any vote or approval or an offer to buy or subscribe for, any security, nor shall there be any sale, issuance, transfer or delivery of the securities referred to in this Pre‑listing Statement in any jurisdiction in contravention of applicable law, or where further action is required for such purpose. The Company believes that the distribution of the Shares in the Unbundling will be exempt from or not subject to the registration requirements of the US Securities Act of 1933 (as amended) (the “Securities Act”). At the date on which the Unbundling will become operative, expected to be Monday, 4 March 2019 (“Unbundling Operative Date”),
3 the Shares will not be listed on any securities exchange in the US. The Company expects to qualify for the exemption from registration under Rule 12g3-2(b) of the US Securities Exchange Act of 1934 (as amended) (“Exchange Act”) and accordingly, the Shares will not be registered under the Exchange Act and the Company will not be subject to the reporting requirements of the Exchange Act. The Company expects to establish at the Unbundling Operative Date an American Depositary Share (“ADS”) facility in the US representing underlying Shares. The Company ADSs will also not be listed on any securities exchange in the US. US and other Overseas Shareholders should see “Part XVI – Settlement/Dealings ‘Overseas Shareholders’” for further information applicable.
Forward-looking statements This Pre-listing Statement includes statements that are, or may be deemed to be, “forward‑looking statements”. These forward-looking statements can be identified by the use of forward‑looking terminology, including the terms “anticipates”, “believes”, “estimates”, “expects”, “intends”, “may”, “plans”, “projects”, “should” or “will”, or, in each case, their negative, other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this Pre-listing Statement and include, but are not limited to, statements regarding Naspers and/or the Company and their respective groups’ intentions, beliefs or current expectations concerning, among other things, results of operations, prospects, growth, dividends, strategies and expectations of their respective businesses and the Unbundling and/or Admission and their respective successful implementation. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Forward-looking statements are not guarantees of future performance and the actual results of Naspers and/or the Company and their respective groups’ operations and the development of the markets and the industry in which they operate or are likely to operate and their respective operations may differ materially from those described in, or suggested by, the forward-looking statements contained in this Pre-listing Statement. In addition, even if the results of operations and the development of the markets and the industry in which Naspers and/or the Company and their respective groups operate, are consistent with the forward-looking statements contained in this Pre-listing Statement, those results or developments may not be indicative of results or developments in subsequent periods. A number of factors could cause results and developments to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, general economic and business conditions, industry trends, competition, changes in regulation, currency fluctuations or advancements in research and development and the other factors discussed in the section titled “Part IV – Risk Factors” and elsewhere in this Pre-listing Statement. Forward-looking statements may, and often do, differ materially from actual results. Any forward‑looking statements in this Pre-listing Statement reflect the Company’s and the Group’s current view with respect to future events and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to Naspers and/ or the Company and their respective groups’ operations, results of operations and growth strategy. None of Naspers, the Company or any member of their respective groups undertakes or is subject to any obligation to update the forward-looking statements to reflect actual results or any change in events, conditions or assumptions or other factors unless otherwise required by the JSE Listings Requirements. Shareholders should note that the contents of these paragraphs relating to forward-looking statements are not intended to qualify the statements made as to sufficiency of working capital in this Pre-listing Statement.
Market Information Without derogating from the Directors’ responsibility statement in Part XVII – Additional Information, the Company and/or its advisers have obtained market data and certain industry information used in this Pre-listing Statement from internal surveys, reports and studies, where appropriate, as well as market research, publicly available information and industry publications. Industry publications generally state that the information they contain has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information are not guaranteed. Similarly, internal surveys, estimates and market research, while believed to be reliable, have not been independently verified, and the Company does not make any representation as to the accuracy of such information and/or the veracity or appropriateness of research methodology, findings or information. Similarly, while the Company believes its internal estimates to be reasonable, they have not been verified by any independent sources, and the Company cannot give any assurance as to their accuracy.
4 Enforcement of foreign judgements in South Africa The Company is a public company incorporated under the laws of South Africa with a significant portion of the assets of the Group located in South Africa. In addition, most of the Directors of the Company (“Directors”) and members of Senior Management are resident in South Africa. As a result, it may not be possible for Shareholders to effect service of process upon such persons or to enforce any judgements obtained in the courts of foreign jurisdictions against them. As a matter of policy, South African courts are inclined to enforce foreign judgements provided certain thresholds are satisfied, particularly in view of the principles of comity and reciprocity. Foreign judgements in this context would include judgements procured from other national courts as well as international judicial forums or tribunals. A foreign judgement is not directly enforceable in South Africa, but constitutes a cause of action that will be enforced by South African courts provided that: • the court that pronounced the judgement had jurisdiction and international competence to entertain the case according to the principles recognised by South African law with reference to the jurisdiction of foreign courts. A foreign judgement may not be recognised in South Africa if the foreign court exercised jurisdiction over the defendant in circumstances where a South African court would not exercise jurisdiction over a defendant (even where the foreign court exercised jurisdiction in line with its domestic procedures); • the judgement is final and conclusive (that is, it cannot be altered by the court that pronounced it); • the judgement has not lapsed; • the recognition and enforcement of the judgement by South African courts would not be contrary to public policy, including observance of the rules of natural justice, which require that the documents initiating the foreign proceedings were properly served on the defendant and that the defendant was given the right to be heard and represented by counsel in a free and fair trial before an impartial tribunal. Usually, a fundamental breach of justice or procedural unfairness is relevant and not merely minor procedural irregularities; • the judgement was not obtained by fraudulent means; • the judgement must not be in conflict with a South African statute; • the judgement does not involve the enforcement of a penal or revenue law of the foreign state; and • the enforcement of the judgement is not otherwise precluded by the provisions of the South African Protection of Businesses Act, 99 of 1978 (as amended) (“Protection of Businesses Act”). That Act requires that consent of the Minister of Economic Development is sought for enforcement of certain judgements, but South African courts have, to date, interpreted this requirement as applying only in circumstances where the claim is connected in one or other way to raw materials and products. It is the policy of South African courts to award compensation for the loss or damage actually sustained by the person to whom the compensation is awarded. Although the award of punitive damages is generally unknown to the South African legal system, such awards handed down in foreign jurisdictions are not necessarily contrary to public policy. Whether or not the enforcement or recognition of a foreign judgement is contrary to public policy will depend on the facts of each case. Exorbitant, unconscionable or excessive awards will generally be contrary to public policy. In this respect, in one instance, an award of punitive damages, which was equivalent to 100% of ordinary damages, was held to be excessive and was not enforced, but much will depend on the circumstances of the case. South African courts will not enter into the merits of a foreign judgement and will not act as a court of appeal or review over a foreign court. The South African courts’ assessment of foreign judgements is usually confined to jurisdictional and procedural matters, although public policy (including considerations pertaining to the Constitution of the Republic of South Africa, 1996) imports certain substantive dimensions. South African courts will usually implement their own procedural laws and, where an action based on a contract governed by a foreign law is brought before a South African court, the capacity of the parties to the contract will usually be determined in accordance with South African law. It is doubtful whether an original action based on the securities laws and regulations of the foreign jurisdictions can be brought before South African courts.
5 TABLE OF CONTENTS
Page PART I – CORPORATE INFORMATION 7 PART II – OVERVIEW OF ADMISSION 8 PART III – EXPECTED TIMETABLE OF PRINCIPAL EVENTS 10 PART IV – RISK FACTORS 11 PART V – INDUSTRY OVERVIEW 22 PART VI – BUSINESS OF THE GROUP 29 PART VII – RESTRUCTURING AND FORMATION OF THE GROUP 39 PART VIII – COMMITMENT TO TRANSFORMATION AND B-BBEE TRANSACTIONS 43 PART IX – DIRECTORS, SENIOR MANAGEMENT AND CORPORATE GOVERNANCE 46 PART X – PRESENTATION OF INFORMATION 60 PART XI – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 62 PART XII – DIVIDENDS AND DIVIDEND POLICY 75 PART XIII – INCORPORATION AND SHARE CAPITAL 76 PART XIV – TAXATION 80 PART XV – EXCHANGE CONTROL 84 PART XVI – SETTLEMENT/DEALINGS 86 PART XVII – ADDITIONAL INFORMATION 88 Annexe 1 Combined Historical Financial Information 101 Annexe 2.a Independent Reporting Accountant’s Audit Report on the Combined Historical Financial Information for the year ended 31 March 2018 159 Annexe 2.b Independent Reporting Accountant’s Review Report on the Combined Historical Financial Information for the years ended 31 March 2017 and 31 March 2016 163 Annexe 3 Condensed Combined Interim Financial Information 165 Annexe 4 Independent Reporting Accountant’s Report on the Condensed Combined Interim Financial Information 177 Annexe 5 Incorporation Financial Information 179 Annexe 6 Independent Reporting Accountant’s Audit Report on the Incorporation Financial Statements as at 4 September 2018 187 Annexe 7 Pro Forma Financial Information 189 Annexe 8 Independent Reporting Accountant’s Report on the Pro Forma Financial Information 198 Annexe 9 Independent Accountant’s Report on the Non-IFRS Financial Measures 200 Annexe 10 Proposed computation of number of subscribers 202 Annexe 11 Particulars of the Directors and Senior Management of the Company 203 Annexe 12 Company Share Plans 219 Annexe 13 The Major Subsidiaries and their Directors 224 Annexe 14 Principal Immovable Properties Held or Occupied 227 Annexe 15 Material Borrowings and Material Inter-Company Balances 230 Annexe 16 Extracts from the Company MOI and the Memoranda of Incorporation of the Major Subsidiaries 232 Annexe 17 Material Contracts 260 Annexe 18 ADS Facility 267 Annexe 19 King Code Register 274 Annexe 20 Definitions, Glossary and Interpretation 282
6 PART I – CORPORATE INFORMATION
Directors Independent non-executive Directors Non-executive Directors Stephan Joseph Zbigniew Pacak Francis Lehlohonolo Napo Letele (Lead independent Director) Elias Masilela Donald Gordon Eriksson John James Volkwyn Kgomotso Ditsebe Moroka Louisa Stephens
Executive Directors Mohamed Imtiaz Patel (Chairperson) Calvo Phedi Mawela (CEO) Timothy Neil Jacobs (CFO)
Company secretary Registered office Rochelle Joy Gabriels CA(SA) MultiChoice Group Limited, formerly, MultiChoice MultiChoice City Group Proprietary Limited and K2018473845 144 Bram Fischer Drive (South Africa) Proprietary Limited Randburg (Registration number 2018/473845/06) South Africa, 2194 MultiChoice City 144 Bram Fischer Drive Randburg South Africa, 2194 (PO Box 1502, Randburg, South Africa, 2125) Registered and incorporated on 4 September 2018 as a private company and converted to a public company in South Africa on 11 January 2019
Joint Financial Adviser to Naspers Joint Financial Adviser to Naspers Citigroup Global Markets Limited Morgan Stanley & Co International plc (Registration number 1763297) (Registration number 165935) Citigroup Centre, Canada Square 24 Cabot Square London E14 5LB Canary Wharf United Kingdom London, E14 4QA United Kingdom
Sponsor Transfer secretaries Rand Merchant Bank (a division of FirstRand Bank Limited) Singular Systems Proprietary Limited (Registration number 1929/001225/06) (Registration number 2002/001492/07) 4 Merchant Place 25 Scott Street 1 Fredman Drive Waverley Sandton Johannesburg, South Africa, 2090 South Africa, 2196 (PO Box 785261, Sandton, South Africa, 2146) (PO Box 786273, Sandton, South Africa, 2146)
South African legal adviser to Naspers and the Company Auditor and independent reporting accountant Webber Wentzel PricewaterhouseCoopers Inc. 90 Rivonia Road Waterfall City Sandton, 2196 4 Lisbon Lane South Africa Jukskei View (PO Box 61771, Marshalltown, Midrand Johannesburg, South Africa, 2107) South Africa, 2090 (Private Bag X36, Sunninghill, South Africa, 2157)
7 PART II – OVERVIEW OF ADMISSION
Introduction As announced on SENS by Naspers on Monday, 21 January 2019 (“Naspers Announcement”), the Naspers Board intends to implement an unbundling by way of a pro rata distribution in specie of ordinary shares of no par value in the Company for no consideration to Shareholders in terms of section 46 of the Companies Act and section 46 of the Income Tax Act (“Unbundling”). Naspers intends to distribute 438 837 468 Shares (being 100% of the issued Shares and all of the Shares held by Naspers) to Shareholders recorded on the Naspers securities register at 17:00 on Friday, 1 March 2019 (“Unbundling Record Time”) on the terms as set out in the Naspers Announcement. It is expected that Shareholders will receive one Share for every one Naspers “N” Share held and one Share for every five Naspers “A” Shares held. Pursuant to the Unbundling, the Company will be an independent publicly traded company. The purpose of this Pre‑listing Statement is to provide Shareholders with information regarding the business and affairs of the Company and the Group and of the Admission.
Approvals The South African Reserve Bank (“SARB”) has granted the necessary regulatory approvals for the Admission. The JSE has approved the Admission of all of the Company’s issued, and to be issued, Shares in the “Broadcasting and Entertainment” sector of the JSE list, under the abbreviated name “MC Group” and the share code “MCG” with effect from the commencement of trade on Wednesday, 27 February 2019.
Overview of the Group The Group has grown into one of the leading video entertainment operators on the African continent and is one of the fastest growing pay-TV broadcast providers global1, entertaining over 13.5 million households in 50 countries across multiple platforms, including digital satellite television (“DTH” or “Direct to Home”) and digital terrestrial television (“DTT”), as well as through online solutions. Today, the Group is structured around the following three business segments: • South Africa, the Group’s division that offers digital satellite television and subscription video-on-demand services to 6.9 million subscribers in South Africa as at 31 March 2018. Connected Video, which forms part of the South Africa segment from a financial reporting standpoint, delivers online video entertainment services to subscribers; • Rest of Africa, the Group’s division which offers digital satellite, online services and digital terrestrial television services to 6.6 million subscribers across Africa as at 31 March 2018; and • Technology, which includes the Group’s leading digital platform and application security division, Irdeto. In the past two financial years, the Group has generated resilient revenue and subscriber growth. For further information please see “Part XI – Management’s Discussion and Analysis of Financial Condition and Results of Operations”. As a pioneer in the African pay-TV ecosystem, the Group has played an important role in making information and entertainment easily accessible. As an African business, its investments have brought both social and economic benefits to the communities in which it operates, through investments in content, access to information, job opportunities, partnerships and training. Some of the key corporate social responsibility programmes initiated by the Group include: • the Let’s Play initiative, an award winning, corporate social initiative programme aimed at encouraging young people to participate in sport; • the MultiChoice Diski Challenge, a football development programme, which has created opportunities for young, aspiring footballers to become professionals and enhance their life-skills, and has also created a platform for interns working towards a career in broadcasting. In addition, the MultiChoice Diski Challenge content partnership with community TV stations provides full, live content rights, free of charge, to community TV channels; • the Magic in Motion Academy which plays a critical role in contributing skills in the film and TV industry and empowering the next generation of storytellers by giving young Africans on-the-job training and the opportunity to get hands-on experience by working with experienced producers; and
1 Based on company filings in 2017.
8 • the SuperSport Rugby Challenge, which is a rugby tournament in association with SA Rugby that aims to re‑establish amateur rugby, including the vital link between club and provincial rugby. Today, the Group employs more than 9 000 people, mostly in Africa, and indirectly creates economic prosperity for over 20 000 more who are employed by its various partners and suppliers across the continent. It remains committed to broad, socio-economic transformation in South Africa, most notably through Phuthuma Nathi Investments (RF) Limited (“PN 1”) and Phuthuma Nathi Investments 2 (RF) Limited (“PN 2”) (collectively, “PN”), its share schemes, aimed at empowering local communities. The indicative timetable for Admission is set out in “Part III – Expected Timetable of Principal Events” of this Pre‑listing Statement.
9 PART III – EXPECTED TIMETABLE OF PRINCIPAL EVENTS
The definitions and interpretations contained in Annexe 20 to this Pre-listing Statement apply to this Part III – Expected Timetable of Principal Events, except where otherwise indicated. The following indicative timetable sets out expected dates for the implementation of the Admission1.
Event Time and/or date2 Publication of this Pre-listing Statement and declaration information Monday, 21 January 2019 Abridged Pre-listing Statement published on SENS Monday, 21 January 2019 Pre-listing Statement posted to Shareholders Monday, 21 January 2019 Finalisation announcement expected to be released on SENS, if required Tuesday, 19 February 2019 Last day to trade in order to participate in the Unbundling Tuesday, 26 February 2019 Admission to listing and trading of Shares from commencement of trade (MCG ISIN: ZAE000265971) Wednesday, 27 February 2019 Naspers Shares trade “ex” entitlement to receive Shares3 Wednesday, 27 February 2019 Announcement to be released on SENS on the fractional cash proceeds in respect of fractional entitlements of Naspers “A” Shares4 By 11:00 Thursday, 28 February 2019 The ratio of apportionment of expenditure and market value in respect of the Unbundling released on SENS Thursday, 28 February 2019 Unbundling Record Date and Time 17:00 on Friday, 1 March 2019 Unbundling Operative Date 09:00 on Monday, 4 March 2019 Dematerialised/Uncertificated Shareholders’ CSDP and/or Broker accounts expected to be updated and credited with Shares Monday, 4 March 2019 Dispatch of share certificates for Shares to Certificated Shareholders Monday, 4 March 2019 Bank of New York Mellon, as depositary, expects to receive credit of Shares at its custodian banks in South Africa for proportion allocated to ADS and to issue ADSs to holders of Naspers ADS Monday, 4 March 2019
Notes: 1 The expected dates and times listed above may be subject to change. Any material changes will be announced on SENS. All references to times are to South African standard time unless otherwise stated. 2 All references to times are to South African standard time, unless otherwise stated. 3 The Unbundling will result in certain Naspers “A” Shareholders being entitled to fractions of Shares. Any fractional entitlements to Shares which a Naspers “A” Shareholder is entitled will be dealt with in accordance with the Naspers Announcement. 4 There may be no rematerialisation or dematerialisation of Naspers Shares between Wednesday, 27 February 2019 and Friday, 1 March 2019, both days inclusive.
10 PART IV – RISK FACTORS
The risks and uncertainties described below represent the risks the Group believes to be material, but these are not the only risks and uncertainties the Group faces. Additional risks and uncertainties not presently known to the Group or that the Group currently believes are immaterial could also impair the Group’s business operations. If any of the following risks actually materialise, the Group’s business, results of operations, financial condition or prospects could be adversely affected. If that were to happen, the trading price of the Shares could decline and investors may lose all or part of their investment. Factors which are material for the purpose of assessing the market risks associated with the Shares are also described below.
RISKS RELATED TO THE BUSINESS OF THE COMPANY The Business is conducted in a competitive environment with developing market demographic and technological trends, changing customer preferences and viewing habits and regulators becoming more engaged in the sector in general The Group competes directly with other video entertainment services and licensees, including state-owned and private free‑to‑air broadcast networks and international over-the-top services for customers, programming, audience share and advertising revenue. The Group also competes with motion picture theatres, mobile network operators, gaming and other entertainment and leisure activities for general leisure spending. The Group faces competition from global companies that deliver content to consumers over the internet (including Netflix), often without charging a fee for access to the content (e.g. YouTube), or charging a lower fee than the subscription prices charged by the Group. Also in the Rest of Africa specifically, various competitors have entered or plan to enter the video entertainment market. The entry of additional competitors using any of the existing and/or new platforms, could impact and/or erode the Group’s video entertainment subscriber base. Currently, its main competitor is StarTimes, which operates a DTH service in South Africa and DTT and DTH services in various Rest of Africa countries, including the major markets of Nigeria and Kenya. The Group’s business environment is subject to rapid technological change and changes in consumer preferences and viewing habits which could render the products and services offered by the Group less attractive The rate of technological change and adoption of new technologies currently affecting the video entertainment industry is rapid. Trends, such as the convergence of television, the internet, mobile telephones and other media, have created an unpredictable environment. New technologies or industry standards have the potential to replace or provide lower‑cost alternatives to products and services that are currently sold by the Group. The Group is constantly developing new services and products, the timing and introduction of which are subject to risks and uncertainties. Unexpected technical, operational, logistical, regulatory or other problems could delay or prevent the introduction of one or more of these services or products. As technology evolves to accommodate multimedia services and products, the Group will need to adapt to, and support, these services and products in order to be successful. Consumer preferences may change as a result of the availability of alternative services or products, such as less expensive or more innovative services or products. The Group’s ability to remain competitive and develop successful services and products also depends on its ability to predict accurately and to anticipate changes in consumer demand. It is not possible to predict whether technological innovations will, in the future, make some of the services and products offered by the Group less competitive. In addition, the availability of affordable broadband together with smart consumer devices in the Rest of Africa in the longer term, will allow consumers greater choice and therefore can impact on the DTH and DTT subscription services provided by the Group. The Group may lose subscribers and revenue if it cannot acquire, produce or retain attractive programming The continued success of the Group depends upon its ability to continue to acquire attractive general entertainment, sport and other programming on reasonable commercial terms. Much of the programming is sourced from suppliers and rights holders. The film studio and sport programming contracts of the Group are up for renewal from time to time. In the event these contracts are not renewed or renewed on terms in excess of budget, the Group may be required to seek alternative programming from other sources or costs of content may increase. The Group cannot be sure whether alternative programming would be available on commercially reasonable terms or whether the alternative programming would appeal to its subscribers. In addition, certain general entertainment and sport programming may not be available to the Group if it has been licensed exclusively to another provider. In the past, competitors have acquired rights to sports content in various territories, such as, the English Premier League and UEFA Champions League and competitors currently hold rights to: Bundesliga, French Ligue 1 and the International Association of Athletics Federations World Championships, for example. The Group’s business
11 strategy also depends on its ability to offer attractive programming on an exclusive basis in order to differentiate itself from competitors. It may become more difficult to maintain exclusive rights to programming, particularly in the light of the fact that the exclusivity of content rights is under increased scrutiny by regulators throughout Africa. The Group may lose subscribers if it cancels or reduces its subsidies of decoders The Group currently subsidises a portion of the cost of decoders and the installation thereof to subscribers. Should a decision be taken to reduce or cancel the subsidy of decoders and installation, the Group’s offerings may become less attractive to new subscribers and could result in a decrease in the number of new subscribers. If the Group is not able to attract new subscribers and/or retain existing subscribers, Group revenue may be negatively impacted. The Group is exposed to material long-term commitments which may impact on the Group’s revenue The Group has many long-term agreements and commitments, including in particular, content rights and satellite transponder lease agreements (and related liabilities), which are material to the Business. These commitments remain in place irrespective of the Group’s financial performance. Should the Group be experiencing strains on cash flows, for example, the commitments to which it is a party will place further strain on the revenues and cash flow generation of the Group, which could also restrict the Group’s ability to deliver on its strategy. Steady or declining subscriber levels may prevent further growth of the Business The Group may face difficulties in maintaining or growing the number of its subscribers, and in potential down- trading by subscribers with a negative impact on the average revenue per user (“ARPU”), due to competition from new entrants to the video entertainment market and from other sources competing for discretionary income, economic and other local difficulties, the loss of popular general entertainment and sport and programming content, and seasonality associated with the markets in which the Group operates. The loss of DTH subscribers (as experienced in the 2016 financial year) particularly in the upper tiers due to the commodity crisis and the resulting depreciation of currencies in the Rest of Africa (as experienced in the 2016 financial year) especially given that more than 80% of the Group’s revenue in the 2018 financial year came from subscription revenue, may have a significant impact on earnings and cash flows of the Group. While plans implemented to reinvigorate growth and cut costs may have a positive impact, such impact may take time to achieve the desired result or not achieve it at all. Declining subscriber levels could also adversely affect the Group’s digital security business, Irdeto, because the Group’s video entertainment operators constitute some of Irdeto’s customers. Steady or declining subscriber levels make it difficult for the Group to grow its Businesses. The Group’s advertising revenue is impacted by its video entertainment subscriber numbers and the audience viewing share of its channels. The viewing behaviour of television viewers could also negatively affect the Group’s advertising revenue, as viewers with a personal video recorder or viewers of on-demand programming may choose not to view any advertising. The Group cannot be certain that these factors will always be favourable to it and any adverse developments or changes could have a negative impact on its advertising revenue. The Group relies on related and third-party service providers to distribute its products and services in certain jurisdictions and does not exercise direct control over the quality of service and interactions with regulators and subscribers In certain jurisdictions, for example, Angola, Zimbabwe, Mozambique and Malawi, the Group relies on third-party service providers to provide its goods and services to customers. As these relationships are regulated by agreements between the Group and the relevant third-party service providers, the Group has limited insight into the day-to- day operations of these third-party service providers. The Group will only be able to address any concerns with the relevant third-party service provider if a subscriber complains to the Group directly or the Group conducts an audit and/or inspection. Because of the reliance on these parties in various African jurisdictions and the Group’s limited oversight in relation to their operations, the Group is at risk of losing subscribers if they do not provide an efficient service. In addition, some of the third-party service providers may be required to obtain operating licences and may be required to engage with regulators. Again, as the Group has limited oversight, it cannot control the full extent of engagements, compliance and conduct that third-party service providers have with regulators. This may negatively impact the operations of the Business and the reputation of the Group. If a third-party service provider engages in bribery and corruption, this may implicate the Group as a result of the contractual relationship between the Group and the third-party service provider and the Group may be prosecuted under various anti-bribery and corruption legislation that apply to the Group. Furthermore, third-party service providers have been selected by the Group due to particular skills, abilities or other qualifications that employees or an owner of a third-party service provider have that in certain instances are unique or personal to them. Should a particular employee or owner cease to be employed or own the business, retire or pass away, it may negatively affect the Business as it may be necessary for the Group to enter into engagements with a new third-party service provider that fulfils the requirements of the Group or in certain instances, where skills, abilities or qualifications cannot be met, may not be possible to engage with a local third-party service provider.
12 The Group’s intellectual property rights may not be adequately protected under current laws in some jurisdictions, which may adversely affect its results and ability to grow the Business The products of the Group often contain intellectual property content that is delivered through a variety of media. The Group relies on trademark, copyright, trade secret and other intellectual property laws and employee and third-party non-disclosure agreements to establish and protect its proprietary rights in these products. The Group conducts business in some countries where the extent of the legal protection for its intellectual property rights is not well-established or is uncertain. Despite patent, trademark and copyright protection, third parties may be able to copy, infringe or otherwise profit from the Group’s intellectual property rights without its authorisation. If unauthorised copying or misuse of the Group’s products were to occur to any substantial degree, the Business, results of operations and financial condition of the Group could be adversely affected. Litigation may be necessary to protect the Group’s intellectual property rights, which could result in substantial costs and the diversion of the Group’s efforts away from operating the Business. If the Group fails to maintain its brand recognition, the Group may face difficulty in obtaining new customers and business partners The Group’s brand names, such as “MultiChoice”, “M-Net”, “SuperSport”, “DStv”, GOtv, Showmax and Irdeto are important corporate assets that help distinguish the Group’s products and services from those of its competitors. The Group and its products are vulnerable to adverse market, media and political perception as it operates in an industry where integrity, customer trust and confidence are paramount. Any direct or indirect damage to the Group’s reputation or brand as well as its associated brands, could affect the Group’s ability to attract and retain customers or have other adverse effects on the Group in ways that are not predictable. Such damage could arise from failure or perceived failure to comply with legal and regulatory requirements, financial reporting irregularities, increasing regulatory and law enforcement scrutiny of “know your customer”, anti-money laundering and anti-terrorist financing procedures and their effectiveness, regulatory investigations, significant changes to key stakeholders, disclosure of confidential customer information, cybersecurity breaches and inadequate services, among other factors, whether or not well founded, and litigation that arises from any of the foregoing, as well as regulatory enforcement actions, fines and penalties. The Group’s reputation and its brands could also be negatively impacted by misconduct or malpractice by intermediaries, business promoters, agents or franchisees or other third parties linked to the Group. For example, the Group’s brand was negatively impacted during November 2017 when concerns regarding the Group’s relationship with the ANN7 news channel and the manner in which the Group engaged with the Minister of Communications, were raised in the media. For further information, please see “Part XVII – Additional Information” of this Pre-listing Statement. Loss of key personnel could have a negative impact on the Group’s operations The Group relies on a number of experienced employees with detailed knowledge of the Business and the markets in which the Group operates. Unanticipated losses of key employees or the inability to identify, attract and retain qualified personnel in the future could adversely affect the Business. In particular, as a result of changing technologies and fast developments in the video entertainment industry, technical, analytical and engineering skills of employees are critical to the Group. Due to stringent competition in the technological and video entertainment industry, it is becoming more difficult for the Group to attract and retain employees with these skill sets. The Business relies on software and hardware systems that are susceptible to failure The Business is operated through complex broadcast and computer systems. Although the Group has disaster recovery plans in the event of damage from fire, floods, earthquakes, power loss, telecommunications failures, break‑ins, war, terrorist acts and similar events, these plans may not be effective for such events or other occurrences. If any of the aforegoing occurs, the Group may only be able to offer a limited service or no service at all. Interruptions to the availability of the Group’s services or increases in the response times of the Group’s services caused by the failure of its software or hardware systems could reduce user satisfaction and the Group’s attractiveness to consumers and advertisers. The Group’s operations are susceptible to outages due to fire, floods, acts of war or terrorism, power loss, telecommunications failures, break-ins, industrial actions and similar events. Despite the Group implementing network security measures, its servers may be vulnerable to computer viruses, software failure as a result of viruses, design faults and inadequate testing, break‑ins and similar disruptions from unauthorised tampering with the Group’s computer systems. The Group invests significant capital and other resources to protect its websites and systems against the threat of computer viruses and hackers and to alleviate any problems caused by them. If a computer virus affecting the Group’s system is highly publicised, the Group’s reputation could be materially damaged. In addition, the Group relies on information technology systems for its internal communications, controls, reporting and relations with customers and suppliers. A significant disruption due to computer viruses, malicious intrusions, the setting up of shared services centres or the installation of new systems could affect the Group’s communications and operations, particularly when the Group is required to migrate its hardware and software to new systems.
13 Satellite failures could adversely affect the Business and the ability to grow it The Group’s television programming is transmitted to its customers through various satellites leased by the Group for this purpose, and in some regions its terrestrial signals are also transmitted to regional broadcast points through satellite downlinks. In addition, the Group receives a significant amount of its programming through satellites. The contractual arrangements relating to satellites are long-term in nature. Satellites are subject to significant risks such as defects, incorrect orbital placement and destruction and damage that may prevent or impair proper commercial operations. All satellites have limited useful lives, which vary as a result of their construction, the durability of their components, the capability of their solar arrays and batteries, the amount of fuel remaining once in orbit, the launch vehicle used and the accuracy of the launch. The operation of satellites is beyond the control of the Group and the Group is not insured for business interruption as a result of satellite failure. Future launch failures or disruption of the transmissions of satellites that are already operational could materially adversely affect the Group’s operations. In addition, the ability of the Group to transmit programming following the end of the expected useful lives of the satellites currently used and to broadcast additional channels in the future will depend upon the Group’s ability to obtain rights to utilise transponders on other or replacement satellites. In the event of a satellite failure, the Group would need to make alternative arrangements for transponder capacity. The Group may not be able to obtain alternative capacity rights on commercially reasonable terms or at all. In the event that the Group has to obtain alternative transponder capacity, it may need customers to realign their satellite dishes to receive the broadcasting signals, which could prove impractical and expensive to implement. If the Group is unable to obtain sufficient satellite transponder capacity in the future, or if contracts with satellite providers were to be terminated, this would have a material adverse effect on the Group’s business and operations. Unauthorised access to programming signals may adversely affect the Group’s revenue and programming arrangements The Group faces the risk that its programming signals will be accessed by unauthorised users. The delivery of subscription programming requires the use of conditional access technology to prevent unauthorised access to programming, or “piracy”. The Group mainly utilises conditional access technology supplied by its subsidiary, Irdeto. This conditional access technology needs to be updated continually to remain effective in preventing unauthorised access. The Group will continue to incur substantial expenditures to replace or upgrade its conditional access technology in the future. Conditional access technology cannot completely prevent piracy, and virtually all video entertainment markets are characterised by varying degrees of piracy that manifest themselves in different ways. In addition, security technology cannot completely prevent the illegal retransmission or sharing of a television signal once it has been decrypted, although it can help trace it and identify its source. If the Group fails to adequately prevent unauthorised access to transmissions, the Group’s ability to contract for programming services could be materially adversely affected and the Group may lose subscribers who can receive pirated signals.
LEGAL AND REGULATORY RISKS AFFECTING THE GROUP The Group’s operations are dependent on licences, the obtaining, renewal or maintenance of which may be uncertain or challenging and which may adversely affect the Business and its operating profits The Group’s operations are subject to governmental regulation in the countries in which it operates. Governmental regulation can take the form of price controls, service requirements, programming content restrictions, programming rights restrictions, ownership restrictions (such as the Foreign Control Restrictions), management and leadership restrictions, licensing requirements and restrictions on the amount or content of advertising. Any of these political and regulatory processes could adversely affect the Business in certain circumstances. Failure or delays in obtaining or renewing any necessary regulatory approvals could adversely affect the Group’s ability to offer some or all of its services. In most of the countries in which the Group conducts business, it operates under licences obtained from governmental or quasi-governmental agencies. These licences are subject to periodic renewal, and the Group may not be able to renew the licences on terms as favourable as the existing licences or at all. For example, the DTT and DTH licences of the Group in Nigeria are subject to upcoming review for renewal by the Nigerian regulatory authority and there is the risk that these licences may not be renewed or renewed on terms less favourable than the licences currently granted to the Group. From time to time, parties may also seek to challenge the validity of licences or attempt to interfere with rights granted to the Business. This may result in the loss of rights held by, or the incurrence of additional cost to, the Business. The licences and/or other forms of approvals issued or granted to the Group from time to time may, as a result of local participation or other indigenisation requirements, require the Group to maintain a certain level of ownership by persons or a class of persons identified in the relevant licences and/or other forms of approvals. Failure to maintain the required level of ownership may have a material adverse impact on the licences and/or other forms of approvals issued or granted to the Group, the operations of the Group and/or the Business. For example, MCSA is required, at all times, to have no less than 30% ownership by persons from historically disadvantaged groups. In order to achieve this, MCSA has implemented a Broad-Based Black Economic Empowerment (“B-BBEE”) scheme with PN. Further detail regarding MCSA’s B-BBEE ownership is set out in “Part VIII – Commitment to Transformation and
14 B-BBEE Transactions”. Similarly in Kenya, the Group has implemented a transfer of 30% of the shares held by the Group in GOtv Kenya to a qualifying local nominee (whilst maintaining the beneficial interest in the stake) in order to comply with local ownership requirements. Adverse changes in the regulatory framework of any country in which the Group operates may impact the Group Adverse changes in the regulatory framework of any country in which the Group operates may occur. The media and competition regulatory frameworks of the countries in which the Group operates are subject to change, and such regulatory authorities may increase their regulation of the Business in these countries. There are several legislative proposals and other initiatives underway in some markets, particularly in South Africa where, among others, amendments are proposed in relation to: • the Electronic Communications Act, 36 of 2005 (as amended) (“ECA”), proposing amendments to the Independent Communications Authority of South Africa’s (“ICASA”) powers, the regulatory spectrum and conduct of competition enquiries; • the Copyright Act, 98 of 1978 (as amended) in relation to royalties for repeats of local content licences or commissioned programmes, that could impact the manner in which the Group conducts the Business and the value of the rights owned by the Group; • the Performers’ Protection Act, 11 of 1967 (as amended) in relation to performers’ compensation for, among others, repeat broadcasts, that could have a negative financial impact on the Business, due to the Group being required to compensate performers for the repeat broadcast of programming; and • the Competition Act, which may introduce wide-ranging remedies to address competition, which may have an impact on all business in South Africa, including that of the Group. In addition, because of its leading position in the markets in which the Group operates, the Group is frequently required to participate in engagements with, and investigations by, the relevant regulators relating to the Group’s position in such markets. In South Africa, for example, the South African Competition Commission (“Competition Commission”) is investigating a complaint against the Group by On Digital Media alleging anti-competitive bundling of sports rights and alleged abuse of dominance, which could result in adverse regulatory action by the authorities, including administrative penalties and negative publicity, which may adversely affect the Group. Further in South Africa, there have also been initiatives by the Department of Health over the last five years to put in place legislative prohibitions on alcohol advertising. The broadcasting sector and others have raised concerns about the adverse economic impacts of a ban on alcohol advertising. These initiatives re-emerged in the final National Liquor Policy gazetted by the Minister of Trade and Industry on 30 September 2016. The Minister of Trade and Industry also gazetted on the same date the Liquor Amendment Bill of 2016 (“Liquor Amendment Bill”) that deals with, among other issues, providing the Minister with the powers to prohibit alcohol advertising on television during specified periods. The broadcasting sector, the liquor industry and the Group have made submissions to the Ministry of Trade and Industry on the Liquor Amendment Bill highlighting the tremendous financial impact of loss of advertising revenue from alcohol advertising and the impact on sports development programmes. A ban on alcohol advertising will negatively affect advertising revenues of the Group as various programmes, particularly on M-Net and SuperSport, rely on revenue from advertising and broadcast sponsorship from the liquor marketers. The laws, regulations and regulatory requirements currently affecting the Group (and the products and services that the Group develops and/or sells) may change in ways that could have a material adverse effect on the Group’s Business, financial condition, results of operations and prospects. It is difficult to accurately predict the timing, scope or form of future regulatory initiatives and reforms. In certain jurisdictions, the Group is also dependent on regulatory authorities allocating frequencies for use in the Group’s DTT Business. If these allocations are not made and/or approved by the relevant regulatory authorities, or are allocated in a manner different to that applied for, this could affect the Group’s ability to provide services to its customers in these jurisdictions and consequently adversely affect the Group’s revenues. The outcome of litigation or governmental investigations may adversely impact the Business or results of operations Due to the international nature and scale of the Group’s operations, the Group is exposed to legal and regulatory risks. These may include, among others, risks relating to claims or governmental investigations pertaining to competition, consumer protection, labour law, data protection, commercial contracts, tax disputes, compliance matters, acquisitions, disposals, joint ventures and investments. The Group is currently party to certain lawsuits and governmental investigations. Adverse outcomes in some or all of the claims or matters pending may result in monetary damages or other remedies that could adversely affect the Group’s results of operations or ability to conduct business. Such adverse outcomes could also result in reputational damage to the Group. In addition, as a result of the highly regulated and consumer focused industry in which the Group operates, regulators routinely investigate the industry in order to, among others, regulate the manner in which the Group operates in the relevant jurisdiction. This regulatory focus or action could ultimately result in a change in the manner in which Business is conducted or affect the cost of doing business in certain jurisdictions, including for example, new and/or different regulatory compliance standards or potential penalties and/or censure to the Group if the Group is found to have acted in contravention of any regulations.
15 South Africa In South Africa, during June 2016, ICASA launched an inquiry into the subscription broadcasting market to look at competition in the subscription broadcasting market. On 25 August 2017, ICASA published a discussion document for public comment. The Group made public submissions to the inquiry on 11 May 2018. The inquiry is ongoing and it plans to have a findings document published by 31 March 2019. The Group has made submissions to ICASA in which it demonstrates that the audio-visual services market has effective competition and that there is no basis justifying any form of ex ante regulation by ICASA. The outcome of the inquiry is, however, uncertain and could have a material adverse impact on the Group and its Business. ICASA has commenced reviewing the Sports Broadcasting Regulations of 2010 and has invited interested parties to make written representations on the draft regulations which it has published in the Government Gazette. The Group will participate fully in this process. The outcome of the review may have an adverse impact on the Business of the Group should, for example, the number of listed national sporting events which must be broadcast by free-to-air broadcasters be expanded. ICASA has also published a questionnaire designed to assist it with a regulatory impact analysis of the current “Must Carry” regulations, which may negatively impact the Business, should, the Group, for example, be required to pay for the public broadcaster channels that it carries. In November 2018, the Competition Commission concluded (and made consequent recommendations to the Competition Tribunal) that, in relation to the 2013 South African Broadcasting Corporation (“SABC”) channel distribution agreement entered into between the SABC and MCSA (which has since expired), (i) in respect of the entertainment channel, the agreement did not give rise to a merger but (ii) in respect of encryption, the agreement resulted in a notifiable change of control because it influenced the SABC’s policy on encryption. Both the Competition Tribunal and the Competition Appeal Court have previously found the transaction not to be a merger. The Group maintains that the agreement was a standard channel distribution agreement, which does not constitute a merger and will make further representations to the Competition Tribunal. The outcome of these proceedings is uncertain, and could have an adverse impact on the Group.
The rest of sub-Saharan Africa A brief synopsis of some of the more significant regulatory developments outside of South Africa is provided below. Although the Group is protecting its rights in all jurisdictions, potential negative outcomes in any regulatory investigation or interaction in these countries may have an adverse impact on the Business of the Group.
Angola The Angolan Institute of Communications (Instituto Angolano das Comunicacoes) has instructed KPMG to conduct an independent pricing study for the provision of electronic communication services. This may impact tariff setting and result in new requirements for price increases in Angola. The proposed Law on Public Media Funding may require the Group to make financial contributions to public media in Angola.
Kenya The Communications Authority of Kenya has introduced a new market structure. It has amended issued licences to align with that structure, and is seeking to limit exclusivity of content. This may dilute the value of the Group’s broadcast rights in Kenya, which may adversely affect the Business.
Uganda The Uganda Communications Commission has established a licensing framework. If the framework is implemented in its current form, then it may require tariff approval for fees charged by the Group.
Nigeria The Nigeria Broadcasting Code is under review, as is the case every five years, which may result in the alteration of provisions relating to, among others, local content, reciprocity obligations under sport rights and advertisements, and must buy provisions for local DTT set-top boxes (“STBs”). This may adversely affect the Business in Nigeria. The Consumer Protection Council is investigating, inter alia, the Group’s compliance with orders issued by the Consumer Protection Council in 2016, new customer service issues and subscription pricing. The Consumer Protection Council also instituted litigation in response to the Group’s latest pricing increase.
Ghana The Competition Bill includes provisions concerning content sub-licensing and the determination of dominance based on asset or turnover. If the Bill is adopted in its current form, this may adversely affect the Business in Ghana. For further information please see “Part XVII – Additional Information – Litigation” of this Pre-listing Statement.
16 Adverse decisions of tax authorities or changes in tax treaties, laws, rules or interpretations could have a material adverse effect on the Business, results of operations, financial condition and cash flows of the Group The tax laws and regulations in the jurisdictions in which the Group operates may change and there may be changes in enforcement of tax law. The Group also operates in certain developing countries in which the tax regimes and dispute resolution processes are changing and developing. Additionally, tax laws and regulations are complex and opaque and subject to varying interpretations. The Group cannot be sure that its interpretations are accurate or that the responsible tax authority agrees with the views of the Group. If tax laws change or the Group’s tax positions are challenged by the tax authorities, it could incur additional tax liabilities, which could increase the Group’s cost of operations and have a material adverse effect on the Business, financial condition and results of operations of the Group. In some instances, the tax authorities may seek to impose penalties and interest charges, which may result in higher costs if the Group is unsuccessful in defending the claim, and negotiations proceedings are protracted. The Group operates a number of businesses in jurisdictions where taxes are payable on certain transactions or payments. The Group continues to seek advice and work with its advisers to identify and quantify such tax liabilities. Certain changes in accounting or financial reporting standards or interpretations issued by standard-setting bodies for IFRS may adversely affect the Group’s reported revenue, profitability and financial results The Group prepares its financial statements in accordance with the International Financial Reporting Standards (“IFRS”). IFRS is periodically revised and new accounting pronouncements, as well as new interpretations of existing accounting pronouncements, could affect the Group’s reported revenue, profitability and financial results. In general, changes in IFRS could have a significant impact on the amount or timing of the reported earnings of the Group, valuation of liabilities or assets, and classification of financial instruments between equity and liability on either a retrospective or prospective basis. Non-compliance with accounting and disclosure requirements could result in significant penalties, but changes to IFRS are, however, an inherent risk in using IFRS as a reporting measure and cannot be avoided by the Group or any other company using IFRS as a reporting measure. Due to the nature of the Business, the Group is exposed to risks of fraud and corruption As a company operating in a number of jurisdictions, the Group is exposed to the risks of fraud and corruption, both within its organisation and in dealing with parties external to the organisation. The Group is committed to full compliance with applicable legislative and regulatory requirements in respect of fraud and corruption in the jurisdictions in which it operates, and intends to maintain internal control systems to limit the occurrence of fraud or corruption. However, there can be no assurance that such procedures and established internal controls will protect the Group against instances of fraudulent or corrupt activity and such activity could have an adverse effect on the Business, the reputation of the Group, results of operations, financial condition or prospects. The Group has various policies in place regarding anti-bribery and anti-corruption, financial sanction and competition law. However, such policies and controls may not prevent instances of dishonesty by employees, contractors, franchisees, agents or other third parties nor guarantee compliance with legal or regulatory requirements. This may lead to regulatory fines, disgorgement of profits, litigation, loss of operating licences or reputational damage. Failure to comply with data protection legislation or a security breach or system failure in the Group’s technical or IT infrastructure could result in regulatory action, compensation claims and adverse publicity which could have a material adverse effect on the Group’s business and results of operations The Group stores a range of information about its customers, including customers’ bank details. The use of this information is subject to various laws, regulations and standards designed to protect sensitive or confidential customer and employee data, including, among others, the South African Protection of Personal Information Act, 4 of 2013 (as amended) (“POPI Act”), as it comes into effect. The POPI Act imposes a range of obligations, including restrictions on direct marketing and on cross‑border transfers of personal information and an obligation to keep personal information secure. The POPI Act empowers the information regulator to impose administrative fines of up to R10 million where a data controller, such as the Group, fails to comply with an enforcement notice. Non‑compliance with an enforcement notice is also a criminal offence. The EU General Data Protection Regulation, which has applied from 25 May 2018, has increased data security compliance obligations and consequences, including significant fines for organisations, located within or outside of the European Union. In particular, the Group is exposed to General Data Protection Regulation by virtue of the operations undertaken by Irdeto, which is headquartered in Europe as well as in respect of certain aspects of the operations of MultiChoice, including those undertaken by MultiChoice in Europe. A breach of any aspect of data protection legislation, especially a breach involving the misappropriation, loss or other unauthorised disclosure of sensitive or confidential member information, including the use of such information for direct marketing purposes, whether by the Group or one of its sub-contractors or service providers, could result in regulatory action, compensation claims and adverse publicity. In addition, compliance with evolving privacy and security laws, requirements and regulations may result in cost increases due to necessary systems changes, new limitations or constraints on the Group’s business models and the development of new administrative processes.
17 The Group owns operations which require it to comply with various environmental and health and safety laws and regulations The Group’s facilities and operations are subject to certain environmental laws and regulations in the countries in which it operates. These environmental requirements may include, among other things, certain pollution control measures or limits for solid and hazardous wastes, water discharges and air emissions, and may require businesses whose activities have an impact on the environment to obtain permits regulating those activities. Non-compliance with such requirements may result in criminal or civil penalties, damage claims, or requirements to install or retrofit pollution control equipment or practices. In addition, South African environmental law imposes an obligation on companies to remediate environmental damages (including damages to natural resources) caused, as well as a duty of care to take reasonable measures to prevent pollution or degradation of the environment from occurring, continuing or recurring.
RISKS RELATED TO THE INDUSTRY AND THE MARKETS IN WHICH THE GROUP OPERATES Certain jurisdictions in which the Group operates have experienced, and continues to experience, limited availability of foreign currency In certain countries in which the Group operates, for example Angola and Zimbabwe, the Group has experienced and is experiencing difficulty in accessing the cash generated from its operations as a result of limited availability of foreign exchange (“Forex”) in these jurisdictions. Also, up until May 2017, the Group experienced similar difficulties in Nigeria, due to, among other things, a lack of sufficient quantity of Forex. Although many of the countries in which the Group operates have taken steps toward addressing the problems mentioned above, the sustainability or availability of these measures is difficult to predict. A lack of, or limited availability of, Forex in certain countries where the Group operates could adversely affect the Group and/or the Business. The Group could suffer losses as a result of fluctuations in foreign currency exchange rates The Group’s reporting currency is the South African Rand (“Rand”), but the Group conducts business transactions in currencies other than its reporting currency. Consequently, the Group is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US Dollar (“USD”) (largely related to content and transponder leases), the Euro (in respect of input costs largely related to transmission), the Nigerian Naira, the Angolan Kwanza, Kenyan Shilling and Zambian Kwacha (in respect of local revenue). Fluctuations in these currencies against the Rand have in the past affected, and could in the future affect, the Group’s revenue, operating costs and general business and financial condition. For example, since the 2015 financial year, the Group has seen significant currency weaknesses. For further information in this regard, please see “Part XI – Management’s Discussion and Analysis of Financial Condition and Results of Operations. A significant portion of the Group’s material cash obligations involving long-term commitments, including payment obligations under transmission equipment and satellite leases, and contracts for the acquisition of broadcast rights to video entertainment content, is denominated in the currencies of countries in which the Group has limited operations, such as the United States. Where the Group’s revenue is denominated in local currency, a depreciation of the local currency against the Rand and USD adversely affects the Group’s earnings and its ability to meet its cash obligations. Many of the Group’s operations are in countries or regions where the local currency has fluctuated considerably against the Rand and USD in recent years. The Group cannot give assurances that the hedge transactions that it enters into to mitigate currency risk will fully protect the Group against currency fluctuations or that the Group will be able to hedge effectively against these risks in the future. In addition, in the Rest of Africa in particular (but also including South Africa), the Group’s video entertainment subscription prices are denominated in local currencies, while a significant portion of its cost base is denominated in USD. Many of these markets, including, among others, Angola and Nigeria, do not offer sufficient liquidity to hedge the foreign currency risk associated with the USD cost base. Furthermore, the ability to pass on the currency risk to customers is limited, due to market sensitivity around the affordability of the Group’s services. As a result, the Group has limited ability to protect itself from the impact of a weakening in these currencies. Accordingly, if the local currencies depreciate against the USD and/or Rand, it could have an adverse effect on the Business and results of operations of the Group. A challenging macroeconomic environment in South Africa may adversely impact growth and retention of subscribers, which could have a material adverse effect on the Group’s business, results of operations and prospects The Group’s South African operations are its most significant, accounting for 69% of its external revenue for the 2018 financial year. Challenging economic conditions in South Africa may put strain on the Group’s customer base and adversely impact growth in the subscription for pay-TV services. The South African Government recently announced that South Africa has entered a period of technical recession, which Government hopes to counteract in various ways, including stimulus plans. Challenging economic conditions for the South African consumer, including potential interest rate increases could lead to a reduction in disposable income. Sales of video entertainment services could decrease during periods of poor economic times.
18 The Group’s operations expose it to a variety of economic, social and political risks in various jurisdictions The Group may be affected by political, social, economic, fiscal, monetary and regulatory changes in the countries where it has operations. The Group’s operations in these markets may involve economic and operating risks. In certain countries in which the Group operates, it has in the past experienced difficulties resulting from currency fluctuations, high interest rates, increases in corporate bankruptcies, political instability, stock market declines, corruption, threats and ransom demands, epidemics and other factors that may materially adversely affect the Business. For example, certain countries in which the Group operates have experienced high levels of unemployment and crime in the past. These problems have impeded inward investment in these countries and have prompted emigration of some skilled workers. As a result, attracting and retaining qualified employees in these countries may be difficult. In addition, the high rate of HIV/AIDS infection and tuberculosis in a number of markets in which the Group operates could cause the Group to lose skilled employees or incur additional costs. Furthermore, certain jurisdictions in which the Group operates experience chronic electricity outages. The electricity outages impact on the ability of the Group to operate efficiently and increase the operating expenses of the Group. As many of the jurisdictions in which the Group operates at times face political instability, the Group faces the risk that regulations can change unexpectedly when new political leaders take office and this could impact the operations of the Group in various ways. For example, in certain jurisdictions, the broadcasting of certain content is prohibited. This and the determination of this prohibited content can sometimes be impacted by political will and could impact the revenue of the Group as alternative content may be required to be procured to replace the prohibited content that would otherwise have been broadcast. Continuing uncertainties and challenging conditions in the global economy and Africa, in particular material markets such as Nigeria, Kenya, Zambia, Zimbabwe and Angola, may adversely impact the Business, results of operations and financial conditions The current macroeconomic environment is volatile and continuing instability in global markets, including the markets in which the Group operates, has contributed to a global economic downturn marked by high unemployment rates and inflation in some developing markets. The Rest of Africa has in recent years experienced adverse economic conditions, exacerbated by declining international oil prices, which create challenging market conditions for the Group’s Rest of Africa business. Any adverse change in economic, political or social conditions in the countries in which the Group operates, and a continued deterioration of the economic conditions in the Rest of Africa, may have a material adverse effect on its profitability. Limitations and restrictions on foreign investment and ownership could hinder and limit the Group’s operations Certain markets in which the Group operates from time to time review their existing limitations on foreign ownership of businesses. The regulator in these markets could recommend more stringent limitations on foreign investment or propose other limitations and restrictions on foreign investment. The Group cannot predict to what extent any such limitations or restrictions will come into place, but any limitation or restriction could hinder or limit the Group’s operations in these markets, or require it to divest from existing businesses at a suboptimal value. South Africa’s exchange control restrictions on foreign investment could hinder the Group’s normal corporate functioning and its ability to make foreign investments South Africa’s exchange control regulations provide for restrictions on the exporting of capital and for various other exchange control matters. The orders and rules under the regulations provide for a common monetary area consisting of South Africa, the Republic of Namibia (“Namibia”), the Kingdom of Lesotho (“Lesotho”) and the Kingdom of eSwatini (“eSwatini”) (South Africa, Namibia, Lesotho and eSwatini, collectively the Common Monetary Area (“CMA”). Transactions between residents (including corporations) of the CMA, on the one hand, and non-residents of the CMA, on the other hand, are subject to these exchange control regulations which are enforced by the Financial Surveillance Department of the SARB (“FinSurv”). As a result of the exchange controls, South African residents, including companies, are generally not permitted to: • export capital from South Africa, hold foreign currency in excess of certain limits or incur indebtedness denominated in foreign currencies without the approval of FinSurv; and • acquire an interest in a foreign venture without the approval of FinSurv. Exchange controls may continue to operate in South Africa for the foreseeable future. As a consequence, transactions by a South African company with a non-resident company require exchange control approval. The Group cannot predict to what extent any future required regulatory approval will be obtained and denial may result in such transactions not being concluded. Exchange controls could therefore hinder the Group’s ability to make foreign investments.
19 RISKS TO THE GROUP RELATED TO THE ADMISSION AND UNBUNDLING Some or all of the anticipated benefits of the Unbundling may not be realised There can be no guarantee that the anticipated benefits of the Unbundling will materialise in full or in part or in a timely manner. There can also be no guarantee that disadvantages for the Group will not emerge as a result of the Unbundling. If the benefits of the Unbundling are not realised as expected and/or the Group incurs significant costs in realising them, this could have a material adverse impact on its results of operations. The Company has no history operating as an independent public company The Group has historically used Naspers’ corporate infrastructure to support some of its financial reporting and governance functions. The expenses related to establishing and maintaining this infrastructure have historically been spread among all of Naspers’ businesses. In order to ensure that the Group will be able to function as a stand- alone listed entity, it is important for those functions to be transitioned to the Group and for the Group to develop and structure its functions and processes, in a range of areas, including making its IT infrastructure, finance and risk management systems independent, enhancing or streamlining certain of its back office processes, separating accounting and financial reporting processes and systems, separating knowledge and education management systems, separating human resource and responsible business processes as well as introducing shareholder services and investor relations platforms. There is a possibility that these functions and processes may not operate as intended or the execution of the separation process and the creation of new processes may not have been properly completed. Consequently, there is a risk that the Group could suffer operational difficulties which, either directly or through the depletion of management resources in developing, monitoring and/or rectifying these new services and functions, could have an adverse effect on the Group’s business, financial condition, results of operations and prospects.
RISKS RELATED TO THE SHARES The absence of an existing market for the Shares may limit their liquidity There is currently no active market for the Shares. Although the Shares are expected to be listed and subsequently traded on the exchange operated by the JSE, there is no guarantee that an active trading market for the Shares will develop and continue after the Admission of the Shares. If no active trading in the Shares develops or continues after the listing of the Shares, this could have a material adverse effect on the liquidity and the market price of the Shares. The market price of the Shares may prove to be volatile and subject to fluctuations, including significant decreases The market price of the Shares could be volatile and subject to significant fluctuations due to a variety of factors, some of which do not relate to the Group’s financial performance, including changes in general market conditions, the general performance of the JSE, changes in sentiment in the market regarding the Shares (or securities similar to them), variations in the Group’s operating results, business developments for the Group or its competitors, the operating and share price performance of other companies in the industries and markets in which the Group operates, exchange rate fluctuations, perceptions of economic and political risk or speculation about the Group’s business in the press, media or the investment community. The price and liquidity of the Shares may also vary between the exchanges on which they are listed. Furthermore, the Group’s operating results and prospects from time to time may be below the expectations of market analysts and investors. Any of these events or others could result in a decline in the market price of the Shares. In addition, following the Unbundling, some Shareholders may not wish to hold Shares (or may not be permitted to do so under the terms of their investment mandates or if they are Overseas Shareholders), and may sell the Shares (or such Shares may be sold on their behalf, in the case of Overseas Shareholders) they received under the Unbundling. Sales of this sort could create selling pressure on the Shares. The Company may not be able to declare and make dividend payments now and in the future The Company’s ability to pay dividends on the Shares is dependent upon the availability of distributable reserves and upon the receipt by it of dividends and other distributions from its subsidiaries. The Group’s subsidiaries’ distributable reserves and the dividends they may declare may be restricted to protect the security of those subsidiaries, as applicable legislation does not allow for the payment of dividends unless solvency and liquidity requirements are met. The payment of dividends by subsidiaries is, in turn, subject to restrictions, including regulatory approval, the existence of sufficient distributable reserves and cash in those subsidiaries as well as certain restrictions in the Company’s debt financing arrangements. These restrictions could limit or prohibit the payment of dividends to the Company by its subsidiaries, which could restrict the Company’s ability to pay dividends to Shareholders. Additionally, the payment of special dividends or dividends in specie by the Company to Shareholders who are not South African residents requires the consent of FinSurv. The withholding of consent by FinSurv could limit or prohibit the Company’s ability to pay special dividends or dividends in specie.
20 Future sales or new issuances of substantial amounts of Shares in connection with any B‑BBEE transactions, share incentive or option plans, acquisitions or otherwise, or the perception that such sales or issues could occur, could adversely affect the market value of the Shares Other than the proposed issue of Shares under the Restructuring and the proposed Flip-Up, which pertains to B-BBEE (further detail on this is provided in “Part VIII – Commitment to Transformation and B-BBEE Transactions” of this Pre-listing Statement), the Company has no current plans to conduct an offering of its Shares. However, it is possible that the Company may decide to issue additional Shares in the future in connection with its commitment to B‑BBEE, share incentive or option plans, acquisitions or otherwise, and, if Shareholders did not take up any offer or were not eligible to participate, their proportionate ownership and voting interests in the Company would be reduced. A future equity issue, or significant sale of Shares by major Shareholders, could have a material adverse effect on the market price of the Shares as a whole. Differences in exchange rates may have a material adverse effect on the value of shareholdings or dividends paid The Shares will be denominated in Rand only, and any dividends will be declared in Rand. The Board may, in its discretion and on such terms and conditions as it may determine, authorise the payment of any distribution (as defined in the Company MOI) to a Shareholder not resident in South Africa in any foreign currency requested by such Shareholder. As a result, Shareholders outside South Africa may experience material adverse effects on the value of their shareholdings and their dividends, when converted into other currencies if the Rand depreciates against the relevant currency. The ability of shareholders outside South Africa to exercise pre-emptive rights or participate in future issues of Shares may be restricted by applicable laws Securities laws of certain jurisdictions outside South Africa (including the US) may restrict the participation, or the Company’s ability to allow participation, by certain Shareholders in such jurisdictions in any future issue of Shares or of other securities carried out by the Company. Any proposed issue of equity securities in the Company will be subject to pre-emptive rights of the Shareholders who already hold issued securities in the class of equity securities proposed to be issued, as set out in the Company MOI, save in relation to an acquisition of assets and other instances outlined in the Company MOI. An issue of new Shares where pre-emptive rights do not apply could dilute the interests of the then-existing Shareholders. Even where pre‑emptive rights do apply, holders of Shares who are located in the US, or holders of ADSs representing Shares, may not be able to exercise pre-emptive rights unless a registration statement under the Securities Act is effective with respect to the Shares to be issued upon the exercise of such rights or an exemption from the registration requirements is available thereunder. Unless the Company is otherwise required by reason of its US shareholder base to register under the Exchange Act, there can be no assurance that the Company will file any such registration statement, or that an exemption from the registration requirements of the Securities Act will be available, which could result in certain Shareholders in the US (and holders of Company ADSs representing Shares) being unable to exercise pre-emptive rights. This could have an adverse impact on the market price of the Shares and the ability of the Company to raise funds to meet its business requirements. Investors in foreign jurisdictions may have difficulty bringing actions, and enforcing judgements, against the Group, its Directors and its executive officers based on the laws of other jurisdictions outside South Africa The Company is incorporated in South Africa. The majority of the assets of the Company’s Directors and executive officers, and a significant portion of the assets of the Group, are located in South Africa. As a result, it may be difficult for investors to enforce against these persons or the Company a judgement obtained in a foreign court predicated upon the laws of jurisdictions outside South Africa. Investors in other jurisdictions outside South Africa may face similar difficulties. Investors should be aware that it is the policy of South African courts to award compensation for the loss or damage actually sustained by the person to whom the compensation is awarded. Although the award of punitive damages is generally unknown to the South African legal system, it does not mean that such awards are necessarily contrary to public policy. However, the Protection of Businesses Act may bar the award of punitive damages in transactions subject to the Protection of Businesses Act. South African courts cannot enter into the merits of a foreign judgement and cannot act as a court of appeal or review over the foreign court. South African courts will usually implement their own procedural laws and, where an action based on an international contract is brought before a South African court, the capacity of the parties to the contract will usually be determined in accordance with South African law. It is doubtful whether an original action based on the laws of jurisdictions outside South Africa may be brought before South African courts. Further, a plaintiff who is not resident in South Africa may be required to provide security for costs in the event of proceedings being initiated in South Africa. In addition, the Rules of the High Court of South Africa require that documents executed outside South Africa must be authenticated for the purpose of use in South Africa.
21 PART V – INDUSTRY OVERVIEW
Overview The Group operates video entertainment subscriber platforms in South Africa and sub-Saharan Africa (50 countries in total) and offers DTH, DTT, over-the-top (“OTT”) and on-demand online video and other video entertainment services. Video entertainment is a commercial service that provides packages of video and audio programming to consumers, typically for a monthly charge. The video entertainment business model generates revenue primarily through subscription fees and, to a lesser extent, through advertising revenue. Video entertainment operators contract with content providers such as motion picture distributors, sports federations, event promoters, and other programming rights holders for the right to distribute programming to subscribers on an exclusive or non-exclusive basis for various platforms. Some video entertainment operators also have their own production facilities or commission content producers. The main distribution channel in South Africa is predominantly digital satellite television. In sub-Saharan Africa, the Group operates both digital satellite television and DTT. In addition, the Group has launched its subscription OTT services, Showmax and DStv Now. Showmax is a subscription video-on-demand (“SVOD”) service (currently provided free of charge for premium DStv subscribers or as a standalone pay service to non-premium DStv subscribers) and DStv Now is a complementary value-added service to DTH subscribers, free of charge for premium DStv subscribers. Video entertainment global trends Apart from North America, pay-TV subscriptions increased globally. At the end of 2017, the global video entertainment market exceeded 1 billion subscriptions. The growth is delivered by pay-TV, and even more so, by internet protocol television and/or OTT services, which are growing much faster than pay-TV. Traditional pay-TV operators have adopted various strategies as the consumer landscape changes. Sports content is a significant feature of pay-TV, and surveys show that it remains an important criterion for subscribers. Global marquee sports events such as the Olympics, FIFA World Cup and other international championships, consistently draw large audiences and extend linear viewing time during the occurrence of each sports event. Streaming sport and viewing on mobile devices have both grown around the world, and significant investment is being made into delivering high-profile events OTT. As a result, the cost of sports rights for such events has increased over the past years. Another important feature of pay-TV is local content. Local content is key for the success of a pay-TV operator. In the context of the African continent, it represents a large share of overall viewing (e.g. 33% share of viewing in South Africa). In addition, having tailored local content is important because consumption varies by country due to, among others, indigenous languages and local preferences. DTH DTH is television delivered by means of a communications satellite and received by a satellite dish and decoder (also known as a set-top box, “STB”). This distribution channel is particularly popular in both remote/rural and urban areas to reach where cable and, in some cases, terrestrial television services are limited or non-existent. DTH provides additional functionality combined with high-quality and reliable viewing, as its signals are received directly from satellites. DTH transmission begins at a broadcast centre, which converts all of the video entertainment operator’s programming into a compressed digital stream. The content is then encrypted in order to limit consumption to paying users and prevent piracy. Encryption scrambles the digital data in such a way that it can only be decrypted if the receiver has the corresponding decoding satellite receiver with decryption algorithm and security keys. Once the signal is compressed and encrypted, the broadcast centre sends it directly to one of its satellites. The satellite picks up the signal, amplifies it and sends it back to Earth, where viewers can receive it via a satellite dish. Video entertainment subscribers in Africa buy decoders from the Group or from various third-party distributors. DTT DTT broadcasts terrestrial digital signals from multiplex transmitters, allowing the reception of multiple channels on a single frequency range. To date, the Group has established DTT networks in eight African countries spanning 130 cities with 163 sites. DTT is economically viable in dense/urban areas where the population density justifies the infrastructure investment required. In rural areas, due to low population density, the volumes would not justify the fixed investments. DTT has significant expansion potential in Africa where the technology allows for relatively inexpensive entry-level programming packages. Additional drivers for DTT expansion are the ongoing Analogue Switch-Offs (ASO) in some of the largest African countries such as Nigeria and Ghana.
22 Market sizing for the Group Currently, South Africa and the top 12 sub-Saharan Africa markets comprise approximately 58 million TV households (“HSLDs”), of which 40 million are considered to be addressable pay-TV HSLDs. It is estimated that TV HSLDs will rise to a total of 68 million by 2022, of which 46 million are considered to be addressable pay-TV HSLDs.
Market Sizing Sub-Saharan (million) South Africa Africa Total MCG Active Subscribers 7 7 14 MCG Unique Subscribers (LTM FY18) 9 12 21 Addressable pay-TV households (FY18) 13 271 40 Addressable pay-TV households (FY22) 15 311 46
Note: 1 Based on top 12 markets in sub-Saharan Africa. Source: Company data, management estimates. Market drivers for pay-TV in Africa The demand for pay-TV in African countries is under-developed compared with other emerging countries and developed countries. The main reason for under-penetration is affordability, driven by low disposable income. In the future, however, the Group expects pay-TV demand to grow mainly due to demographic and macroeconomic factors, which are the most important growth drivers for the pay-TV market. First, Africa provides an attractive population backdrop: • Africa1 represents a population size almost three times that of the United States:
Population1 (million) 2017 2022 Africa 1 061 1 208 Asia (excl. China)2 899 933 LatAm 644 675 Western Europe3 422 426 United States 326 338 CEE4 97 95
Notes: 1 Excludes North Africa. 2 Defined as “East Asia & Pacific” per World Bank, figure adjusted to exclude China, Australia and New Zealand. 3 Western Europe includes Austria, Belgium, Cyprus, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and UK. 4 Defined as “Central Europe and the Baltics” per World Bank, figure adjusted to exclude Estonia, Latvia and Lithuania. Source: World Bank. • Africa1 is a region with high population growth:
Population Growth (2017 – 2022 CAGR) Africa1 2.6% LatAm 0.9% Asia (excl. China)2 0.7% United States 0.7% Western Europe3 0.2% CEE4 (0.3%)
Notes: 1 Excludes North Africa. 2 Defined as “East Asia & Pacific” per World Bank, figure adjusted to exclude China, Australia and New Zealand. 3 Western Europe includes Austria, Belgium, Cyprus, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and UK. 4 Defined as “Central Europe and the Baltics” per World Bank, figure adjusted to exclude Estonia, Latvia and Lithuania. Source: World Bank.
23
In addition, the growing share of urban population and the growth in middle class households are both positive trends for the pay-TV industry moving forward, particularly for DTT:
In addition, the growing share of urban population and the growth in middle class households are both positive Growing share of urban population (% of total African population) trends for the pay-TV industry moving forward, particularly for DTT: Growing share of urban population (% of total African population)
52% 41% 31% 22% 15%
1960 1980 2000 2020 2040
Source: World Bank.
Source: World Bank. Growth in Middle-class Households (2017 – 2021 CAGR)
Africa1 2.7% 2 LatAm Growth in Middle Class Households 1.7% Europe3 0.6% (2017-2021 CAGR) Notes: 1 Refers to average ofAfrica top 10(1) countries by populations in Africa (excluding North Africa).2.7% Excludes Democratic Republic Congo, Sudan and Mozambique as data unavailable. 2Second, GDP growth is a strong indication of favourable macro-economic trends within the region LatAm based on averageLatAm of(2) Brazil, Mexico and Argentina. 1.7% 3(despite the downturn in the commodity markets and Forex over the past five years): Europe based on average of Germany, UK and France. Source: Euromonitor. (3) Real GDP growthEurope (historical CAGR, 2012–2017) 0.6% Second, GDP growth is a strong indication of favourable macroeconomic trends within the region (despite the downturn in the commodity markets and Forex over the past five years):
Notes:Real (1) GDP Refers growth to average (historical of top 10 count CAGR,ries by 2012 populations – 2017) in Africa (excluding North Africa). Excludes Democratic Republic Congo, Sudan and Mozambique as data unavailable (2) LatAm based on average of Brazil, Mexico and Argentina. (3) Europe based on average of Germany, UK and France. 5.7% 5.5% Source: Euromonitor.
4.5% 4.1%
3.2% 2.9% 2.7% 2.4% 2.2% 1.6% 1.5% 1.0%
Mozambique Kenya Uganda Zambia CEE Angola Nigeria Asia US W. Europe South Africa LatAm (excl. China)
Source: World Bank. Source: World Bank.
Increased access to electricity enables further TV penetration, especially in sub-Saharan Africa:
Access to electricity(1) Access to Electricity Access to Electricity TV Penetration 2018 TV Penetration 2022 and TV penetration 2017 2030 24
Eastern Africa 41% 66% 18% 21% 26
Central and Southern 29% 41% 48% 51% Africa(2)
Western Africa 51% 64% 47% 54%
South Africa 84% 99% 80% 78%
Notes: (1) Share of households with access to minimal levels of electricity. (2) Average excluding South Africa.
Source: World Energy Outlook 2018, Ovum.
27
Increased access to electricity enables further TV penetration, especially in sub-Saharan Africa:
Access to electricity1 Access to Electricity Access to Electricity TV penetration TV penetration and TV penetration 2017 2030 2018 2022 Eastern Africa 41% 66% 18% 21% Central and Southern Africa2 29% 41% 48% 51% Western Africa 51% 64% 47% 54% South Africa 84% 99% 80% 78%
Notes: 1 In addition to favourable demographics and macro-economic environment, consumer behaviour is Share of households with access to minimal levels of electricity. 2 anothAveragee rexcluding key factor South to Africa. take into consideration when assessing the potential of the pay-TV market in Source:Africa. World As pEnergyer the Outlook chart belo2018,w Ovum., the African population watches more TV than the world average: In addition to favourable demographics and macroeconomic environment, consumer behaviour is another key factor toA vtakeerage into TV cconsiderationonsumption (h owhenurs per assessing day) the potential of the pay-TV market in Africa. As per the chart below, the African population watches more TV than the world average:
Average TV consumption (hours per day)
5:13 4:37 4:36 4:03 3:50 3:49 World: 2:56
2:25
Kenya South Africa Nigeria US LatAm Europe Asia
Source: Eurodata – 2018 edition of One TV Year in the World.
WhenSource : comparedEurodata - 2018 with edit ionother of On eemerging TV Year in t hcountriese World. and developing countries, there is notable upside for pay-TV in Africa as: •W hTVen penetration compared haswith room other to emerging grow as itc oisuntries relatively and low developing in African countries, markets; thereand is notable upside for •pay-TV Pay-TV in penetrationAfrica as: is lagging in developing markets. The upside is even more pronounced for sub-Saharan Africa markets. TV penetration has room to grow as it is relatively low in African markets; and Pay-TV penetration is lagging in developing markets. The upside is even more pronounced for sub-Saharan Africa markets.
Pay-TV penetration (% of households, 2018E)
71% 64% 58% 52% 39% 40% 31% 20% 17% 14% 12% 10% 25
(1)
Notes: (1) Western Europe includes Austria, Belgium, Cyprus, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and UK. (2) Defined as "Asia Pacific" per Ovum. Source: Ovum.
28
In addition to favourable demographics and macro- economic environment, consumer behaviour is another key factor to take into consideration when assessing the potential of the pay-TV market in Africa. As per the chart below, the African popul ation watches more TV than the world average:
Average TV consumption (hours per day)
5:13 4:37 4:36 4:03 3:50 3:49 World: 2:56
2:25
Kenya South Africa Nigeria US LatAm Europe Asia
Source: Eurodata - 2018 edition of One TV Year in the World.
When compared with other emerging countries and developing countries, there is notable upside for pay-TV in Africa as: