MultiChoice Group Limited (OTCPK:MCHOY) Q4 2022 Earnings Conference Call June 10, 2022 6:00 AM ET
Meloy Horn – Head, IR
Calvo Mawela – CEO
Tim Jacobs – CFO
Conference Call Participants
Jonathan Kennedy-Good – JPMorgan
Warwick Bam – Avior Capital Markets
Omar Sheikh – Morgan Stanley
Jacques Conradie – Peregrine Capital
Good day, ladies and gentlemen, and welcome to the MultiChoice Group Financial Year 2022 Results Presentation. [Operator Instructions] Please also note that this event is being recorded.
I would now like to turn the conference over to Meloy Horn. Please go ahead.
Thank you, Chris, and hello, everyone, and thank you for joining us today on this Friday. Our results for the 12 months ended 31st of March on 2022 were released yesterday. And for those of you who are registered on our database, you would have received an e-mail with all the relevant information. And for those not on our list, these slides have been uploaded under latest results in the Investors section of our website.
As usual, our presenters today are Calvo Mawela, our CEO; and Tim Jacobs, our CFO. Calvo will briefly reflect on the results highlights, touch on our strategy and provide a detailed update on our operations as quite a lot has happened this year. Tim will then take you through the financials with Calvo wrapping up on the outlook for the year ahead. Thereafter, we’ll happily take some questions.
But before Calvo gets underway, I would like to flag our planned Investor Day later this year, we will focus on our evolving strategy and our approach to capital allocation. We will provide more details in due course.
So with that, let me hand you over to Calvo to start today’s presentation.
Thank you, Meloy, and good day, everyone.
If you turn to Slide 4, I will start off with the highlights of our results. A key aspect for me since listing is that we have consistently delivered. This year, we have grown our linear pay-TV base by close to a million subscribers, and we have expanded our Showmax paying base by a healthy 68%. We have grown revenue 7% in organic terms through volumes and pricing, supported by a strong rebound in advertising income. We have kept our trading margin steady at 19%, even though we had to absorb R1.1 billion in content costs that were deferred from last year into this year. We are able to achieve this on the back of another R1.2 billion in cost savings.
Free cash flow declined marginally, but still came in at a healthy R5.5 billion. This is despite R1.1 billion in prepayment. We’ll cover the details of our operational KPIs in the segment review. But a key aspect of the year was the 32% increase in our local content production hours, while our live sports broadcasts were up 51%.
As we look to build a business beyond video, KingMakers, which is our investment in sports betting, delivered strong momentum with top line growth of 68%. The past year also saw us making a few minor investments to gain exposure to new verticals, and we bought out minorities in our SuperSport Schools business.
With that, let’s turn to Slide 6 for a brief update on our thinking around strategy and capital allocation. Our platform is developed over time. On the back of a trusted brand, unmet distribution and payment capabilities, a strong technology foundation and a heavy focus on localization. We have a window into the homes of almost 22 million subscribers, and because they are on average five people living in each household, we reached over 100 million individuals through that relationship every day. This creates a unique opportunity for us to do more for our customers and at the same time, create additional value for our shareholders.
Our vision is to be the platform of choice for African households and to enrich their lives by delivering entertainment and relevant consumer services through technology. We are doing this by growing our core linear pay-TV business, developing and scaling our online and interactive services and by making select investments in scalable tech-based consumer services.
But let’s turn to Slide 7, and I’ll explain further. We are a proudly African-centric group that enriches lives. M-Net is Africa’s most loved storyteller. SuperSport provides African viewer with access to a world of champions and our Connected Video team and aggregation strategy provides convenience for access to global entertainment.
While we remain focused on the opportunities to grow our core business, we are now at the stage of our journey, especially with the Rest of Africa approaching breakeven, where we can look beyond paid video entertainment services to what comes next.
With our customers at the call, and by leveraging the scale and reach of our platform, our aim is to create an ecosystem of scalable tech-based consumer services. This strategy will allow us to generate meaningful new revenue streams as our pay-TV business matures over time.
To be clear, we don’t want to be everything to everyone, and we clearly understand our core competencies. We believe that by targeting select verticals we have an opportunity to build something special. We will do so through organic investment and innovation, strategic partnerships and select M&A.
With this in mind, the areas we are focusing on are interactive entertainment, where we have invested in sports betting platform, the KingMakers and have successfully launched SuperPicks as a joint initiatives. Home services, where DStv Internet is gaining good traction and AURA is bringing the benefit of emergency and security services to many middle-income households on the continent. And fintech, where we take around $3.5 billion in payments annually and pay away around $60 million in commissions. And where we already have almost 2.5 million customers in our DStv insurance business. We are also looking at edu-tech, a much-needed service to help African equip themselves for the future.
Moving to Slide 8. If our vision is the why and our strategy is the what, then capital allocation in the how. Balancing the need to reinvest in our core business, support our broader growth ambitions and return excess capital to shareholders requires a disciplined approach to capital allocation, and we have been disciplined as the three trends in the graph on this page show.
In allocating capital to sustain our core business, we have carefully managed our content costs with total spend as a percentage of subscription revenue remaining in a steady band for many years. Our ratio is arguably one of the most efficient amongst our peers. And although we are not a capital-intensive business, we do need to spend on systems and hardware to support the business, and our CapEx spend reflects a steady trend over time.
In terms of allocating capital towards growing our core business, we have spent money to scale, especially in the Rest of Africa, where we now reach over 12 million households. Our growth strategy often involves stepping up our core subsidies when it makes sense to do so. For instance, around Christmas, or around events like the FIFA World Cup.
We have also stepped up our investment in local content as a strategic differentiator with great success. As part of these core capital allocation areas, we consider discretionary allocations such as targeted M&A and returning excess capital to shareholders through dividends and share buybacks. Since our listing, we have invested R6.1 billion in opportunities to drive future growth beyond video entertainment.
Our hurdle rates for new investments are high, typically between 20% and 25% and to ensure that we are aligned with shareholders, we also link these returns to executive pay, where our PPS scheme requires a 25% return on investment, almost double our cost of capital. This is for management to qualify for 100% vesting. You can read more about the mechanics of this scheme in our remuneration report.
Our disciplined approach is quite clear when it comes to returning excess cash to shareholders. Since our initial commitment to pay R2.5 billion in dividends in FY ’20, we have consistently done so. Despite the challenges of COVID-19 when many other operator council reduce or defer their dividend payments.
We have also maintained an annual Phuthuma Nathi dividend of R1.5 billion over the same period. And we have been buying back shares at opportune times to fund our share schemes, generating R105 million in cash savings to date.
So with this brief explanation of our strategy and our approach to capital allocation, let’s turn to Slide 10 to discuss our operational delivery. Regardless of our future ambitions, content remains at the core of what we do, and local content is our engine room. As demand for local content continues to rise ahead of supply, it makes sense to keep allocating capital to this area.
This year, we produced over 6,000 hours of local content, with our local content library reaching 70,000 hours. Whilst our target was to allocate 45% of our total general entertainment budget to local content, we achieved 47% and are well on track to reach our objective of 50% by FY ’24.
During the year, we launched seven additional local channels with two new Portuguese channels in the second half. We also adopted some of our regional properties such as [Reva and Zooba] into localized Portuguese language versions. We continue to coproduce content as it offers cost benefits. We are very excited about producing Shaka Ilembe, which tells the story of the Epic African legend. We are also currently working with Canal+ on a series called Spinners.
While local content is a key differentiator, our view has also love global content. We unpack the key components of our international content strategy on Slide 11. We are actively executing against our aggregation strategy, bringing customers access to more content as well as the convenience of having all their entertainment in one central place.
Two key elements of our approach are connected devices and third-party streaming partnerships. We are enjoying strong momentum in the sales and usage of our Explora Ultra decoder, and we are almost ready to go to market with Streama, a device that will allow the streaming of our services at a much lower price point than the Ultra.
In terms of streaming partnerships, we are thrilled about our exclusive launch partnership with Disney+ and the initial traction of the offering. This is the first global premium service that became available on our device, at the same time as its market launched in South Africa. We are also offering our subscribers bundled deals for the first time, including an add-to-build solution for packages below Compact.
In addition to our aggregation strategy, we continue to license exceptional international content. We renewed several rights, including a 3-year series and movie deal with Sony. Ad-hoc rights to the big budget Halo series based on the popular video game and the DreamWorks channel with its popular characters and stories for family viewing.
Moving on to SuperSport on Slide 12, another critical point of our content differentiation. The SuperSport team delivered an incredible amount of sport this year, forecasting over 14,000 live events and more than 1,200 of our own live productions.
Record viewership was achieved for Euro 2020, the British and Irish Lions Rugby tour and the Tokyo Olympics. And who will forget the dramatic end of the 2021 Formula 1 season with the driver championship decided in the last lap of the final race.
We continue to improve our channel lineup and renewed popular sports right in support of what we believe is the best sports offering globally. One of the biggest success stories of the year has been the SuperSport Schools platform which we now own 100% and which enjoys a large viewership than La Liga.
SuperSport Schools is growing fast. It covers system sporting codes and 77 schools have already signed up. The platform forecasts more than 5,000 live matches and gave exposure to 550 schools and all that in a year that is still affected by COVID.
The year ahead is shaping up to be another bumper year. Following the success of Chasing the Sun, we have five compelling African sports documentaries scheduled for release. I hope you have been watching the best of this called Two Sides, which is a 3-part series focused on last year’s closely contested British and Irish Lions Rugby tour to South Africa. Meanwhile our sales, marketing and customer teams are already gearing up for the 2022 Soccer World Cup, where SuperSport will be the only broadcaster on the continent to show all 64 matches.
Moving on to the South African business on Slide 13. After almost 40 years since we first launched pay-TV in South Africa, the business is starting to mature. With pay-TV penetration levels approaching those in developed markets.
This does not mean we won’t grow. The addressable market, which is estimated at almost 15 million households still represents an opportunity especially in the mass market and the growing market for over-the-top services. It does, however, mean that we need to adapt and shift our focus more towards the potential in the mid and top end of this market segment.
Turning to Slide 14. We have been reducing our dependence on the premium base by actively growing the mid and mass market customer base. We added another 3.4 million customers from our lower end bouquets since FY ’16. We have achieved this without sacrificing margins. Speaking to the underlying contributions of the other paying agents to our fixed cost base as well as our efforts to contain costs.
The past few years saw an erosion in our premium base due to price on affordability in a tough economic environment, arising immigration and a contents slate that was perhaps not optimized for the changing demographics of our customer base.
Given its absolute contribution, premium remains important, and retention has been a key focus of our present strategy. Our efforts are paying off, and this year saw a welcome deceleration in the rate of decline from 8% last year to only 4%.
We benefited from the return of live sport and set up our value proposition with offerings such as bundled services and special rewards. We also added more local content to the lineup. While our THOLA KONKE HAVE IT ALL campaign is pursuing the DStv premium very well as a lifetime lifestyle brand and gaining good momentum.
Another key part of our strategy for the South African business that is maturing at the high end is the launch of new products and services to grow ARPU over time. Slide 15 highlights some of these initiatives.
The past year saw a significant rise in the active base of our Add Movies offering. The service that allows subscribers to add the movie bundle to the monthly subscription for R99. Not only that it drives upgrades by exposing customers to the broader premium offering, but it is already making a welcome contribution to our top line.
In FY ’22, Add Movies doubled its uptake and quadrupled its revenue contribution. The DStv Rewards program with support retention and has been successful in reducing dominancy — dominance rather, continues to gain traction with the base that is approaching 1 million customers. DStv Internet launched in the middle of the financial year is also seeing strong growth momentum. And our DStv insurance business saw a healthy increase in active policies to 2.4 million.
On Slide 16, one of the highlights of our South African business is that we have crossed the 9 million subscriber mark for the first time. The past year saw [indiscernible] return home following its success in Nigeria. While we experimented with the new football format called DStv Compact Cup.
We sold over 100,000 Explora Ultra decoders, an important underpin to our aggregation strategy. Outside of our focus on digital enablement, we also made strategic enhancements to our customer experience and service touch points. This included eight interactive Kiosks in shopping malls and 10 DStv Express Containers to provide customer savings in underservice areas.
Finally, we decided to limit concurrent live premium for DStv to protect our content and our rights holders. We are consistently seeing abnormally sub-active picks during key episodes in series and popular sports events as well as passwords being sold online. This is a global issue, and many operators, including Netflix, are taking steps to address it. As you will imagine, we have been closely monitoring the impact of our decision and are happy to report that it had a positive impact on the uptake of our digital video services.
On Slide 17, we’ll walk you through our key performance indicators for the South African business. Many global pay-TV operators have seen a full providing subscriber growth as a result of the COVID-19 pandemic and there were no exceptions.
Analyzing subscriber growth in the aftermath of the pandemic and trying to isolate the general return to work and school dynamics from the impact of a really challenging consumer environment is nearly impossible. Despite the challenges, our team executed well to add another 100,000 subscribers and grow the base to 9 million households.
The mass market remained buoyant, absorbing inflationary pricing and posting 7% growth. The mid-market is our ever [indiscernible] as rising unemployment and indebtedness affected households in this segment in particular. With the winners of the PSL Soccer League decided almost halfway through the season, a lot of excitement was lost. In the end, we saw a 6% drop in Compact customers to 2.8 million. Blended ARPU was 3% lower as the mass market base continues to grow and impact the mix, while customer active days normalized post-pandemic to 281 days.
Turning to Slide 18 and the Rest of Africa. One of the last remaining growth reasons for pay-TV [indiscernible]. Our Rest of Africa market represents significant runway given an addressable market of almost 37 million households and relatively low penetration level.
We see opportunity to grow by continuing to sign up customers in underpenetrated areas especially through our regionalization strategy and as a result of rapid urbanization, gaining market share from other operators through a superior product offering and increasing customer active days through various initiatives, including the scheduling of content. We are very excited about the Rest of Africa range of profitability in the coming financial year.
Slide 19 provides a picture of the potential impact that this may have. The graph on the left shows the picture in FY ’15. This was before the implementation of our value strategy to drive much wider adoption. It was also before the unexpected commodity crunch that triggered widespread economic fallout. As a result, our Rest of Africa business was plunged into loss-making position.
Since then, we have doubled our subscriber base by adding another 6 million households. We have also absorbed some R3.3 billion in currency headwinds over the past three years alone. However, we have been running a profitable DTT business since FY ’21. And today, around 50% of our core pay-TV markets in the Rest of Africa are already profitable.
As reflected by the graph in the middle, we have steadily been narrowing our losses through building scale and cutting costs, and this was despite currency challenges and having to absorb some material time shifted content costs this year. After we return this business to profitability, our next objective will be to get to free cash flow breakeven, followed by generating margins in line with historic levels.
In the chart on the right, using this year’s revenue number, we give an example of what the financial uplift could look like once this business reaches profit level similar to FY ’15. A potential swing of more than R3 billion could be a major pulls to our earnings.
Turning to Slide 20. We provide an operational update on the Rest of Africa segment. We surpassed the 12 million subscriber mark for the first time this year, benefiting from strong execution and the success of our business strategy which saw us consistently adding almost 1 million subscribers each year for the past six years.
In Nigeria, we enjoyed record growth in December. We also saw significant reconnections across our markets in January as our customer value management team successfully focused on retention and win-back activities. We further supported their efforts with targeted initiatives such as the launch of our DStv Poa package in Tanzania to drive better growth at the low end and the enhancement of our Portuguese local language content ahead of the analog [indiscernible] in Mozambique.
A key highlight for the past year was the launch of our GOtv Supa package at a value proposition and price point above GOtv Max. It is early days, but we are seeing very promising results. We have mentioned our regionalization strategy in the past, but it’s not simply about driving demand into underpenetrated areas. It is also about increasing the effectiveness of our distribution channels by improving point of sales productivity across our footprint. We also continue to optimize our digital channels to drive engagement and upsell such as our initiative to tie different voting rights to idol of Nigeria to customers in subscription tiers.
On Slide 21, we provide some color on a few markets where one of the highlights this year has been currencies that generally held up better than expected. Nigeria, which accounts for almost half of the segment subscription revenue delivered 11% growth as our regionalization strategy delivered strong results and help to offset challenges caused by fuel and power supply strategies.
We are able to reach an agreement with FIRS to suspend our expected court challenges and for them to commence the long-awaited tax audit. This is currently underway, and we are hopeful that it will be concluded in the next few months.
While hard currency liquidity remains tight despite the buoyant oil price, we were able to attract almost all the money that we generated this year. We have flagged the competitive dynamics in the Kenyan market previously, particularly at the low end, and saw a 7% decline in our GOtv base in the year.
We have actively repositioned our GOtv Lite package with more competitive pricing and launched GOtv Supa to accommodate customers at the top end. The change in pricing and package mix has helped ARPUs while DStv subscriber growth has partially offset GOtv price.
Zambia saw a welcomed recovery in its currency, which, together with inflationary price increases, a positive shift in subscriber mix and some cost savings resulted in trading profit and a healthy free cash flow growth. Overall subscriber growth was marked by some weakness on the DTT side.
As with Mozambique, Angola benefited from an improved Portuguese language offering. While the strong oil pricing helped the kwanza to strengthen on average relative to last year, these positive developments have seen our subscriber base and financials stabilized.
On Slide 22, we look at the summary of the Rest of Africa’s key performance indicators. Our subscriber base sustained its 7% growth rate from the FIFA and enjoyed healthy growth in both the top and middle segment. And normalization in sports events, our investment in local content and targeted marketing, such as our step-up campaigns have helped to boost the demand of our Compact Plus and Compact packages in particular.
The growth in the mass market was affected by the decline in the lower-priced GOtv packages in Kenya and Zambia, as explained in the previous slide. We have implemented inflation-led price increases in the bulk of our core markets while price increases in Nigeria were delayed to April 1 this year.
Blended ARPU was up 4% in dollar terms, benefiting from positive subscriber mix and pricing and somewhat offset by lower active days as subscriber behavior normalized after the relaxation of COVID-19 lockdowns.
Following on from linear pay-TV, we discuss our Connected Video business on Slide 23. We operate in the intersection of content and technology and our Connected Video segment delivered on both fronts in FY ’22. Our monthly active users across DStv streaming and Showmax were up 28%, with engagement rising even faster as reflected by a 52% increase in play events.
Showmax delivered 68% growth in paying subscribers, an exceptional effort by the team, which resulted in us gaining three percentage points in market share. Just like the general entertainment and SuperSport teams, Showmax is investing in localized strategy. We produced 10 Showmax originals this year compared with six production last year. DevilsDorp was our breakout hit for the first half and The Wife was a highlight in the second half with an extremely popular reception in the South African market.
We are also investing in the rest of our African markets, especially Kenya and Nigeria, and we produced our first original show for Ghana this year. We are perpetually improving our user experience. On the back end, we have been migrating to Amazon Web Services to support scalability and dynamic loads.
On the front end, our engineers have continued to refine all aspects of our user interface, particularly content discovery. We are also generating traction in our strategic telco partnerships including our recent tie-up with MTN to support localized payment and to offer content plus data streaming bands.
Moving away from our subscription business to our technology segment, Irdeto, we turn to Slide 24. At the interims, we flagged that Irdeto was most exposed to global challenges, including a shortage of silicon chips and supply chain disruptions as well as the impact of the pandemic on key markets like India. Nonetheless, the team executed well and is navigating their way through short-term challenges while building for the longer term.
On the media security side, Irdeto gained additional customers in a maturing market. Key customer wins this year included Sky New Zealand, Sky Brazil, Connect TV, and [indiscernible] time network. The business is increasing market share for more traditional conditional access offerings as well as new hybrid service solutions.
Hybrid solutions are required where pay-TV operators are adding connected services, much like we are doing with our Explora Ultra decoder and our Showmax service. In this regard, we continue to innovate and can now offer our clients support across both Android and RDK hybrid development environment.
Irdeto is also developing the connected industries business and remain excited about the potential in a number of vehicles. Our connected transport customers were most affected by the short supply of chipsets.
But Hyundai was nonetheless able to ship 223,000 vehicles with Irdeto’s Keystone technology in this year, which is a 15% increase from last year. We signed a new agreement with a major worldwide provider of logistics services to provide Irdeto’s Keystone technology to secure keyless access to long-haul transport clients in the U.S. market.
We made further inroads in the video game segment, where we signed agreement with a large video games developer platform, providing Irdeto technology to secure games and protect player experiences. And we continue to develop new partnerships, notably in the connected health space.
On Slide 25, we provide an update on KingMakers, a sport betting business and our first investment into [indiscernible] services. During the year, we increased our shareholding from 20% to 49%. As a result, the business is now fully capitalized for its expansion plans beyond Nigeria with over $200 million on its balance sheet.
KingMakers, which we [quit] the account, delivered impressive revenue growth, which accelerated from 43% in FY ’21 to 68% on the back of 112% increase in its active user base. It also posted strong growth across various key performance indicators.
Despite generating $131 million in revenue, the business made a loss of $19 million as it invested in people, technology and products needed to support its ambitious expansion plans. Following its launch in Ghana, it is now active in four markets.
SuperPicks, a free-to-play predictor game and our first product collaboration with KingMakers was launched in Nigeria in the start of the recent English Premiere League soccer season and already has more than 0.5 million registered uses. It has also been rolled out in South Africa with good early traction. In the year ahead, KingMakers will be expanding its offering and launching in new markets, and we look forward to following their progress.
Finally, on Slide 26, we provide a summary of KingMakers’ attraction to date and show how its sustained performance should result in a rapid unwind of the acquisition multiple that we paid. The business is already operating at scale, taking stakes of more than $1 billion in FY ’22 and deploying around 400 people.
Its user base and financial reflect a rapid growth path, which is set to accelerate with the introduction of new products and the entry into more markets. In our view, the acquisition multiple that we paid for this investment is likely to unwind rapidly, and the business is set to generate healthy returns for shareholders over time.
This concludes my operational update. As I reflect on all that we have achieved over the past year, I’m filled with gratitude to all our teams for their commitment to keep enriching lives.
Let me now hand over to Tim to discuss our financial performance.
Thank you, Calvo.
The operational efforts by all our teams during the 2022 financial year have translated into solid results and Slide 28 reflects the financial highlights. Our Rest of Africa business delivered strong top line growth on the back of both volumes and pricing, while a rebound in advertising income provided a further revenue uplift. The trading margin was steady at 19% as tight cost controls allowed us to absorb the R1.1 billion in content costs deferred from the prior year.
A further narrowing of losses in the Rest of Africa, and a less adverse impact from currency hedges supported growth in core headline earnings. We were able to deliver healthy free cash flow relative to the prior year despite making R1.1 billion in prepayments. This performance, together with our strong balance sheet, enabled us to make an early R500 million repayment on our KingMakers’ loan and declare another R2.5 billion in dividends.
Slide 29 provides a quick snapshot of the headline numbers with organic growth shown in brackets. 7% organic top line growth translated into 3% reported revenue growth due to a stronger average rand. Trading profit was up 1% in organic terms despite absorbing significant deferred costs as mentioned.
It’s also worth flagging that the improvement in our Rest of Africa segment was offset by slightly lower profitability in our South Africa and technology segments. In contrast to the sharp 26% decline in the first half, core headline earnings recovered and closed 6% up for the full year as the swing in realized foreign exchange gains and losses had a less pronounced impact on the full year results relative to interims. Finally, free cash flows were down 3% as CapEx spend and prepayments were higher in the second half.
On Slide 30, we start with subscription revenue, the largest contributor to our top line. The chart on the left shows our 90-day active subscriber base, which was up 5%, driven by 7% growth in our Rest of Africa business and a more muted 1% increase in South Africa. Subscription revenues reflected in the chart on the right followed suit as we generated solid organic growth of 5% in total. This was mainly driven by the Rest of Africa, which benefited from an average 7% price increase and an improvement in mix with the return of live sports to deliver 13% organic growth.
Growth on a nominal basis was negatively impacted by the translation of the Rest of Africa dollar revenues into rands at an average rate of R14.93 compared to R16.30 to the dollar in the previous year. South African revenues grew 1% to R29 billion, supported by price increases and an encouraging 33% recovery in commercial revenues, offset by the ongoing shift in mix towards the mass markets.
Turning to Slide 31, where we look at our revenues by time. Our DStv media sales team has delivered a fantastic recovery following the challenges experienced during the pandemic. Advertising revenue of R3.9 billion is a 37% improvement from the year before and 22% above pre-COVID levels.
This segment benefited from the resumption of sports programming and increased marketing spend as lockdown restrictions eased as well as higher sales related to local content and the successful implementation of new digital advertising strategies. Technology revenues were impacted by the challenging global operating environment and aggravated by the effect of the stronger rand on the translation of its U.S. dollar revenues. Other revenue grew 8% year-on-year, driven by strong growth in our insurance business and a rise in sublicensing income.
Slide 32 is an update from interims and is aimed at providing a clear explanation of the abnormal dynamics in content costs due to COVID-related disruptions. There are a few key elements to highlight starting from the left-hand side of the graph. Last year, we successfully renegotiated R530 million in one-off content refunds due to shortened leagues and impaired formats. In our 2021 results, we also flagged that R1.1 billion in costs were deferred into 2022.
In this year, we managed to achieve R900 million in content cost savings through renegotiated contracts, some channel terminations and the ongoing refinement of our international offering to reinvest in local content. This was more than offset by price escalations, special events, new content and hedging losses as the rand strengthened. Finally, we highlight the benefit that resulted from translating the content costs of the Rest of Africa segment at a stronger rand. Although — altogether, this resulted in content costs increasing 9% on a nominal basis.
On Slide 33, we analyze our operating leverage and look at our cost saving trends. As you know, our target is to keep organic growth in revenue ahead of organic growth in operating expenditure. In this period, the nonrecurrence of content refunds and the absorption of additional deferred costs of R1.1 billion meant that our content costs rose by 13% organically. Our sales and marketing costs also normalized given the resumption of sporting events and a gradual opening up of our markets, giving rise to an additional R200 million in costs. This meant that our overall organic cost growth came in at 8%, which is 1% above our revenue growth of 7%.
In terms of costs, we have yet again delivered more than R1 billion in savings, predominantly from renegotiated contracts for sports rights and international general entertainment content, as well as other contract renegotiations, internal restructure savings and lower consulting fees. Going forward, we expect these savings to become lumpier. We have a target savings of R800 million in the next financial year.
Slide 34 provides a view on our trading profits. We were able to generate a steady trading margin of 19%, aided by our cost optimization program and despite the normalization of content costs. The South African trading margin of 31% was within our targeted range of 30% to 32%, but trended marginally lower, mainly due to the rise in content costs as already explained. In the year ahead, we expect the South African trading margin to be between 28% and 30%, mainly due to the additional expenses relating to the FIFA World Cup as well as the impact of high inflation on costs.
Our Rest of Africa business performed particularly well, narrowing its trading losses by 24% on an organic basis. Results were once again distorted by the shift in content costs. Irdeto managed to deliver some margin expansion despite experiencing top line pressure. This was mainly due to tight cost controls.
On Slide 35, we show our standard trading profit bridge for the Rest of Africa. While we benefited from subscriber growth and improved customer mix and pricing, this was largely negated by an increase in cost like sales and marketing, Nigerian future contracts, as well as the normalization in content costs.
The net effect of these dynamics is a trading loss, which narrowed 24% on an organic basis. The overall currency headwind this year amounted to only R144 million as currencies held up better against the U.S. dollar than the year before. Consequently, the trading loss narrowed 14% on a nominal basis, and we remain on track to reach breakeven in the 2023 financial year.
Slide 36 shows core headline earnings, which recovered from a decline of 26% at the interim stage to growth of 6% for the full year. The key drivers of this turnaround was the delivery of the bulk of the R1.2 billion in cost savings in the second half as well as smaller realized losses on our forward exchange contracts as the rand weakened in the second half of the year. These foreign exchange contracts include, for example, hedges for transponder leases that are recognized below the line and content hedges that have matured but remain on our balance sheet until such time as the content is amortized to our income statement.
In financial year 2022, we incurred below-the-line FX losses of R309 million compared to profits of R405 million in FY ’21. This swing of R714 million, shave 22% off of the overall growth rate when compared to last year, and materially affected the contribution by South Africa. We typically take these contracts out up to three years in advance, sometimes resulting in gains and other times in losses upon maturation.
However, that tested over time, this approach has proven to be effective in protecting the group against major currency fluctuations and rand weakness. We provide more detail on the segmental results and the impact of hedging in the appendix to this presentation.
Slide 37 reflects on our resilient cash flow, which amounted to R5.5 billion despite the impact of a combined R1.1 billion in prepayments made this year. The waterfall graph in the middle provides some insights into key movements. So starting from the left-hand side, in the comparative period, we generated R5.7 billion in free cash flow. EBITDA improved by R120 million off the back of a solid operational performance. The prepayment of tax in Nigeria as part of moving forward in the ongoing tax audit resulted in a drag of R570 million.
Other prepayments amounted to R500 million, including $300 million to secure the supply of silicon chips for our set-top boxes ahead of the FIFA World Cup and a $200 million prepayment made on additional satellite capacity for the Rest of Africa. We reduced capital expenditure by R492 million through efficiencies in our tech modernization program and nonrecurrence of an ERP system replacement in Irdeto.
Lastly, the benefit of a stronger rand on translation and lower tax payments resulted in a combined benefit of an additional R338 million. While these one-off payments will not repeat in the year ahead, some of the benefit will be negated by the timing and costs associated with the 2022 FIFA World Cup.
As many of you know, this is always an opportunity for us to drive growth which means we need to invest in set-top boxes, subsidies and marketing. In prior years, the event was hosted in July and August, allowing us to recoup a lot of our investment in the same year. However, with the 2022 event in Qatar scheduled in November and December, we’ll have limited opportunity to recover all of these costs and will therefore see some of the benefits of our investments spill over into the 2024 financial year.
Turning to Slide 38. We focus on the last element of our financial update. The strength of our balance sheet, which provides us with flexibility to allocate capital towards our growth ambitions and return some to shareholders. Our cash holdings remained healthy at R6.2 billion, while R5 billion in facilities leaves us with the total available funds of R11.2 billion. Some of these funds are not immediately available to us or have been set aside for other uses. An amount of R4 billion has been set aside to pay the Phuthuma Nathi and MultiChoice Group dividend in September of this year.
A total of R1.6 billion or USD 109 million of cash is subject to in-country restrictions and/or liquidity constraints. And R1.3 billion will be used to pay the short-term portion of our loans. This leaves R4.3 billion, which will be used to fund the operational side of our business through the ups and downs of our working capital cycle. Our debt position increased to R4 billion as a result of the additional funding that was put in place to settle the acquisition of the additional 29% stake in KingMakers.
Based on additional liquidity on hand at year-end, the decision was taken to make an early $500 million repayment on the loan to lessen the impact of nondeductible interest in future years. It remains important to us to retain a sound financial foundation as we return the Rest of Africa business to profitability. Our strong balance sheet allows us sufficient capacity to absorb shocks and flexibility to invest for future growth through organic and inorganic channels.
This concludes our update on our financial performance for the year, and I’d like to hand back to Calvo to conclude with a few comments on our outlook.
Thank you, Tim.
On Slide 40, we look at the 2023 financial year ahead of us. We will continue to focus on and drive penetration of our video entertainment services across the African continent, offering our customers an array of unique and rich media content in a convenient and cost-effective way.
We plan to make the FIFA Soccer World Cup in Qatar, our biggest yet as the only broadcaster on the continent showing all the games live. In South Africa, we’ll be focusing on initiatives to drive retention, while in the Rest of Africa, our efforts will be aimed at reaching their all-important profitability milestone.
And our Connected Video team will be looking to build on the success of the past year. Meanwhile, our content teams will continue to invest behind our local content strategy, where we are targeting to spend half of our annual general entertainment budget on local content by FY ’24. The Irdeto team will be looking to push hard in both the media security and connected industries segment.
As a group, our focus will be on saving around R800 million in costs, generating strong cash flows and maintaining a healthy balance sheet. And as a platform of choice, we will look to further expand our ecosystem and enrich the lives of our customers by delivering quality entertainment and relevant consumer services.
The year ahead will not be without its challenges. High inflation is likely to affect consumers across our markets and firmly have to reprioritize their spending in the short term. At the same time, people are likely to spend more time at home, which could be a positive for us. As a team, we are excited about the opportunities ahead of us as we look to build our business beyond video.
That concludes our presentation for today, and we are happy to take questions. Thank you.
[Operator Instructions] Our first question is from Jonathan Kennedy-Good of JPMorgan. Please go ahead.
Good afternoon, and thanks for the opportunity to ask questions. I just have a follow-up. You’ve got some detail on Slide 19 with regard to the Rest of Africa profitability and trading loss progression. I just wanted to understand the second chart there which you’ve got some blocks talking about R900 million in content cost normalization, which implies that the trading loss in ’22 was a lot smaller than that reported. I just want to get some color on that. And then some kind of indicative trading profits into 2023, assuming a 12.5% trading profit margin also on the same slide. I’m just trying to understand whether that relates back to DTT kind of margins that you spoke of earlier — DTH margins that you spoke of earlier and how we should be interpreting that.
Okay. So it’s Tim here. I think let me give this a go. So firstly, we were just on the middle slide, we were simply giving an indication if the costs have been incurred in the respective territories, sorry, in the respective years. In other words, that R900 million cost that was deferred from last year into this year in the Rest of Africa, if it had actually been incurred last year as it was originally intended, then this year’s loss would have been significantly lower, right?
And it was to try and help the market understand our trajectory towards getting to profitability because we are still having certain of our shareholders and investors, they seem to be a bit skeptical about whether or not we can achieve a breakeven position in the coming year. So we’re just trying to demonstrate in a slightly different way, the performance of the business over this last year.
In the graph on the right, it’s not — the graph on the right is not next year’s profitability. It’s an indication in the future, if we get ourselves to a margin that we’ve achieved previously, what that swing in profitability could look like.
Again, we’ve been asked a number of questions over the last, I’d say, 12 to 18 months to say once we get to break even what next, where do we think we can get this business to. I think we’ve been fairly consistent saying that we could get it back to a 12% margin. And so we are trying to just demonstrate if we did get back to that margin, what the difference in profitability would look like but it’s not an indication in the steel for next financial year.
Great. Thanks Tim. And just to clarify, so that chart in the middle, would it be correct to say that if the costs have been incurred in those respective years, the loss in ’21 would have been R2.3 billion and this year narrowed to R300 million? Is that —
That is correct. That’s correct.
Okay. So — and that R900 million, what type of content did that relate to, mainly sports?
It was mainly sports. Remember, there was a whole lot of fixtures that because we were in a COVID year, a lot of the sporting codes had to stop the — so let me give you a typical example. The Irish and Lions rugby tour was scheduled for that year and didn’t play out. It had to be deferred into this financial year. So what’s ended up happening is this year, we’ve carried more cost as there were more events in a particular calendar year than we would normally experience.
And that happened across the board. I mean we had — Wimbledon didn’t play. It was shifted into this financial year. There were sports leagues that played out that were shortened last year and pushed into this financial year.
And in fact, in total, there was R1.1 billion. And then you have to add on top of that, the R500 million of rebates that we secured last year because of the formats that were interrupted. So the total year-on-year swing in these costs was R1.6 billion. R900 million of that was incurred in the Rest of Africa business. The balance was incurred in the South African business.
Thank you. That’s very clear. And if I just may follow up with one more question on KingMakers. Could you remind us if you have an option to up your stake and take control in that business? And if so, is there any kind of agreed range, price range or multiple attached to such a transaction?
Yes. We don’t have an option to buy any additional shares in KingMakers, no.
Thank you. The next question is from Warwick Bam of Avior Capital Markets. Please go ahead.
Good afternoon, Calvo and Tim. Thank you very much for the presentation. Two from me. First, you’ve had some flexibility from content costs to manage the margin in your SA business despite the decline in subscribers. I’m assuming there’s a delicate balance between the depth and quality of the content and client retention. You had R1.1 billion in deferred content costs in this period yet your guidance for margin into 2023 is slightly lower. Just give us a sense of how we should think about the margin beyond 2023. And is this a temporary decline? Or should we consider this the new normal given the current attrition rates in your premium and mid-market subscriber base? I’ll start there.
Okay. So look, I think when we think about margin, we take both costs, inflation and we take what we’re anticipating happening in the subscriber base into account. And we try to operate within ranges. So for example, we — since we listed, we’ve been very clear about a range of 30% to 32%. We now see that as we have stripped more and more costs out of that business and as our ability to take material cost out is starting to decrease, we need to reconfigure that range.
Obviously, we will try to keep it at the upper end of that range for as long as we can. But we felt it’s prudent because we are giving a range on margin in South Africa to just indicate when we thought that the margin was going to slowly start to deteriorate.
Remember that we have got a business that is getting price increases at kind of half of inflation over the last couple of years. We have been seeing some pressure in the top segment, now in the middle segment as well. So we know that the consumers are under significant pressure.
And while we do significant work on an annual basis to strip cost out of the business to make up for those differences, as we — as it’s going to become lumpier to get those savings, we feel it’s prudent to start giving a portion that the margins are likely to kind of just track lower a little bit. Now hopefully, we’ll be able to keep that in a band for a period of time.
And every year, when we come and present our results, we normally kind of give a view as to what we think that band is going to be for the next 12 months. But it does take the subscriber movement into account as well.
Thanks, Jim. And then lastly, how do you think about dividends and capital allocation once the Rest of Africa becomes cash flow positive?
Well, I think the principle behind that is very similar to what we have now. One, I think the risk on the balance sheet and the cash flow reduces materially once Rest of Africa’s cash flow breakeven, which we anticipate happening in 2024. And of course, if we have got excess capital, we’ve always been not only willing, but quite disciplined about either paying it back as a dividend or looking at it as a share buyback if the share price is looking attractive.
So I think the answer that we can give you is we don’t like to predict, I mean, given that Calvo strategy is to also look at new opportunities. It will just depend each year on what is sitting in front of us. Do we have a significant opportunity that requires an investment of capital? If not, then we are very firm in our belief that we should return that to shareholders.
Thank you very much.
Thank you. Our next question is from Omar Sheikh of Morgan Stanley. Please go ahead.
Hi everyone. I’ve got three questions, if I could. Maybe just start on the SA business. Could you just give us a sense of whether you think the attrition in the premium and the mid-market subscribers in South Africa is going to get better or worse in 2023? You talked obviously about the impact of unemployment, disposal income squeeze, load shedding, et cetera, that was impacting ’21 — sorry, ’22. So I’m interested to see what your thoughts are and whether those pressures are going to get any worse as we go into the coming fiscal year. So that’s the first question.
Secondly, going back to Slide 19 on the Rest of Africa margins that you achieved in 2015? Just want to be clear here, are you saying that you’re going to be able to get back to those margins at some point in the future, TBD, or how relevant really is that 12.5% figure given the business mix is different today in terms of distribution and so on? And then finally, I wonder if you could just give us an update on whether you’ve had any conversations with Vivendi about their future intentions? What do you think they plan to do in terms of their shareholding? Thanks very much.
Yes. Maybe let me start on the SA business in terms of your question on premium and mid-segment. On the premium side, as we have reported, we saw the decline being better than what we have seen in the past. And we’ve always said that we think premium will get to a stage where it stabilizes because everybody that will be on premium are people in the higher end of the market. That would like to have all video entertainment at a given point in time.
And we believe that we are getting closer to that stabilization point where we’ll have the high-end sitting at premium and marginal increase in pricing will not affect them that much. In the mid-segment, as we have reported, we are seeing a lot of consumers under pressure as a result of unemployment and people having lost their jobs. And that is an area that is — we think it’s still going to be a pain point in this financial year.
However, what we are beginning to pick up as well in the middle segment is that our content lineup as well has not helped in this regard, especially towards the end of the financial year where in halfway through the league of the PSL, which is one popular sport in South Africa, especially in the mid-segment.
You have a team that has already won the league, the interest disappears and people then are able to share. I think there are initiatives that were put in place around content and the league also improving in the next financial year. And we’ve had interactions with the rights’ holders indicating what impact it has if the league doesn’t become as competitive as it used to be. So we think it will be a pain point, but we are actively working hard to make sure that we retain as much customers as we can.
Our mass market will continue to grow. We don’t see any problem there. We think the product demonstrate value and people love our product very well, and we have not seen a slowdown in the quota sales in South Africa in the mass market.
On your question on Vivendi, we continue to have those monthly interactions with them. Their view is still very simple. They like the business, they like the management, they think it’s a well-run company and that this company will continue to grow. They see it as a good financial investment. But over and above that, they think the areas of collaboration that we can work together as they are based mainly in the French territories, and we are in the Anglophone territories.
And with this relationship, we have seen it growing from strength to strength in terms of identifying core production that we can do together in terms of us getting the rights and then sublicensing to them, they think that relationship worked very well. As to where they are going in the long term, they have not shared anything further other than what I’ve shared in the past.
On the margins, I’ll move on to Tim.
Do you want to maybe just mention shareholding?
Yes, yes. And on the shareholding side, we have indicated in our slides that they are now sitting at 18.4%.
Yes. So they have been buying some shares. They’re not yet at a notifiable stage. That will happen when they get to 20%, but they have been active in the marketplace picking up a couple more percentage points since the last announcement. Okay. Then in the Rest of Africa margin, so you’re 100% right. The structure of the business back in 2015 was very different. That was a premium business, operating off a significantly lower number of subscribers, and it was obviously at a much higher margin package. What has fundamentally changed between then and now?
Is that while we have dropped the prices and made this much more attractive to the broad market, remember that what we’ve been very disciplined over the last couple of years is stripping costs out of our business. And as we strip cost out of the business, the amount of fixed costs that we need to recover has come down as a proportion, right?
So now what we find is that as you are scaling the business in the mass market and the middle market in Africa, you are still able to make very strong positive contributions to the profitability of this business overall. So in the slide that I presented, which gives you the Rest of Africa trading profit bridge, you’ll see that the contribution from volumes and mix and pricing is about R2 billion this last year.
So as long as we have got the capacity to keep scaling and building up the subscriber base in the Rest of Africa, with an 80% fixed cost base in the group. A big chunk of that is obviously what is going to drive this business, firstly, back to breakeven and profitability next year or in this current financial year that we’re sitting in, 2023. The following year, we get to cash flow breakeven. That obviously means that the profit already starts to ratchet up in the business. And we think that, that 12% margin once we get to profitable breakeven point, we think that it’s probably a medium-term objective.
So it won’t happen overnight, but I think within a reasonable period of time, we think that we can get to that 12% margin.
That’s super helpful. Thanks very much Tim and thank you very much Calvo as well.
Thank you very much. The next question is from Jacques Conradie of Peregrine Capital. Please go ahead.
Hi, Tim and Calvo, just a further question on that Slide 19 in Africa. I mean, firstly, I mean, well done getting so close to breakeven. It’s great that we’re now hopefully highly likely to break even in the next year. So I just want to ask also on this 12.5% margin, I mean, if we look at 2017 to 2020, I mean you burned close to R20 billion in just those four years. And obviously, there’s more before and more after that in terms of the total losses to get us here. So I just worry if 12.5% doesn’t seem like a sufficient return on that kind of spend, if that’s the medium-term margin target, you probably need something, maybe not SA level, but it feels like that on, let’s say, probably R25 billion, R30 billion now spent here on losses. I mean, the R2.3 billion still needs tax and stuff to come off. So maybe just thoughts on where one could see that margin get to in time.
Jacques, you are far too clever. So you’re quite right. At a 12% margin, it will not deliver a return that we would be satisfied with. But we are uncomfortable giving potential margin ranges more than kind of medium term, right? I mean even medium term has a number of issues and risks associated with it. But we believe in the longer term, that the way we’re thinking about the Rest of Africa is that the investment that we’ve made since listing has to have a reasonable return, and that return is based on the money that we could deploy into other investments.
So we compare that, for example, we’ve indicated on the capital slide that we typically look for returns of between 20% and 25%. And over time, we would expect that the Rest of Africa business needs to deliver that kind of a return profile in order to justify the investment that we’ve made over the last couple of years.
So your observation is right. What we’re not comfortable doing at this point is indicating how we’re going to get there with margin, it’s just too early in the day, but we are thinking along the return lines that Rest of Africa needs to deliver over the longer term.
Okay. Thanks. I mean that makes a lot of sense. And I mean, if I look at the last three or four years, you’ve obviously also been really unlucky on just the currency headwind we face every single year. If one looks at the organic improvement versus then what the currency has taken away. I mean there’s obviously just the last three or six months, so you can just see a few of these key currencies have stabilized and actually turned the other way. So is that — I mean, again, you obviously can’t rely on this. But if things stay here and we get a resource cycle, that’s more bullish for African currencies, and at least we’ve got some stability or some strength. Is it possible that timelines could go faster? Obviously, I mean, no need to forecast and these currencies can change again. But the way it’s looking, it’s at least going in the right direction.
No, Jacques, you’re 100% right. If the currency stays stable, we — in our forecast, we always budget conservatively on our FX rates simply because we’ve been in a kind of, let’s call it, a negative cycle for so long. We try not to get caught unaware. So we try to manage the business on the basis that we’re going to see currency depreciation. So if these currencies stay strong like it has in this last financial year, I think that there will definitely be an acceleration in the performance of the Rest of Africa business that is going to be faster than what we’ve seen in the past. There’s no question about that.
Okay, great. Thanks a lot Tim. And well done.
Thank you very much. So we have no further questions on the conference call. We just want to check if we have any questions from the webcast.
So, we do have a couple of questions. Meloy is going to read them out.
Okay. So the first question is from Mark Narramore from Excelsia Capital. And he’s asking what rate did you extract the naira at and have you been getting money out post year-end and at what rate? I’m going to do three questions at a time.
And then so the second question from [indiscernible]. Congrats on the results in a South market. Can you discuss the breakdown of what you expect for content costs in the year ahead?
And then [indiscernible] asking in your guidance for margins for South Africa in 28% to 30%, you cited cost of inflation is main reasons. I think, Don, we’ve pretty much unpacked most of what’s happening on the margin side. He’s asking the weaker stock-based growth dynamics also impact. And I think the answer is yes. So I’m going to just keep on that one. Just send me another note if you don’t feel that we’ve covered your question in Tim’s answer to your previous question.
And then [indiscernible] says, could you please unpack how the WACC for the group is 12.6%? What inputs do you take? So let’s start there. So it’s the naira extraction, and firstly, then the content cost for the year ahead and then some comments about our WACC.
All right. Okay. So let’s start off with the rates on the cash. So we averaged about R565 million in this last financial year. And more recently, we have seen — so the trades at the moment are kind of oscillating. We saw the first trades happen above R600 million, at around about R608 million, R610 million and then we’ve done a recent deal that’s taken us all the way back down to R590 million. So kind of a little bit of volatility in the rates at the moment, but they kind of seem to be moving around that R600 million mark at the moment.
Okay. Then the issue on content costs, so I think there’s going to be two ways to think about your content costs. The first one is I think you’ve got to look at inflation as kind of a primary driver of costs. And then I would go and look back historically at the last, say, two, three years and have a look at the growth in content costs and use that as a kind of an indicator as to where we think the content line is going to go to. There’s lots of moving parts in your content cost line. So it’s very difficult for us to give a precise — a kind of a precise steer on exactly where we think that’s going to come out.
And then on the weighted average cost of capital. Well, I mean I’m not entirely — I think if we can leave that, we’ll come back to you because that is something that I think we can just take offline and just unpack all the different components for you. I don’t think that there’s anything specific in there that was like earth shattering, but I’ll just get — I’ll get the IR team to just come back to you with an e-mail on that.
Okay. Thank you. Then — sorry, last question. We have [indiscernible] asking, could you please provide more detail on KingMakers, the margins aimed for and what extra spending forced the losses? And how far will this $203 million cash take before more cash is required?
Then another follow-up question from [indiscernible]. How confident are you of your continued ability to push through inflation-linked increases across Africa, given the difficult macro-outlook for the region? Can you speed up top growth again in Rest of Africa since it slowed to mid-single digits, and we’ve seen some double digits over the past few years?
And then another follow-up from [indiscernible] asking what streaming issues are you expecting with a DStv streaming service? And what plans do you have in improving the user experience of that offering? Any customer feedback worth highlighting.
Okay. Yes. Maybe I shall start. On inflationary prices in the Rest of Africa, what we have seen in the market is that — in as much as we have done price increases for the past two financial years. They have been — we have not seen that much of impact in terms of our subs growth which really demonstrates that people appreciate our products, and they still value them at the prices that we sell them.
But of course, we are getting into tough times across and we’ll have to look at carefully as we put prices as to what impact it will have on our growth trajectory, but the plans are still to look at inflation as a benchmark for us to put prices through. In terms of how quickly can we accelerate the African market. We have spoken about the regionalization strategy, and we have not tapped in all regions in many of the markets on the African side.
There are still regions where we have not reached, and we are still planning to go there. What we have seen is that once we enter a region, within a — six, nine months, people have started taking up the product, and we have been visible in those regions, the uptick starts kicking in. And we think it will pay like that in some of the regions that we have not reached as yet.
So we don’t anticipate a slowdown in in growth. And we have already mentioned that we think the market is around 37 million. So we are still far behind instead in terms of reaching that the 37 million mark of households.
Remember that in the next financial year, we have FIFA World Cup, which does really well for us. And this financially in the first in a number of years that we have this Soccer World Cup only available on our platform, which will drive many people onto our platform. So we think we’ll benefit out of that.
And then there was the question on DStv insurance?
Yes. No, on the streaming side, we have had, I think, very good successes. If you look at what we have reported in terms of Showmax numbers, 68% growth. I think if you have played around with the app presently, you will see that content discovery is much better. The user interface is much better.
The experience is much better. So we think we have done a really great job on the engineering side and complement to the engineering team, both in South Africa and in the Czech Republic for the great work that they have done.
The feedback that we are getting has been really good in terms of our product. Of course, there was some noise when we announced that we are limiting concurrent trips. But overall, after the noise has gone through, we saw a lot of people now taking up the streaming service which really shows that people were abusing using the system by sharing passwords and allowing probably their kids sitting in another city to be able to use their accounts and that has also been well received and that people have understood that it has got impact on content rights holders. And it’s similar to piracy. They should not be doing that. And we think it works well for us going into the future.
And then I think the last question related to the margin in KingMakers. So I mean, obviously, the African continent is different, but if we’re just going to have a look internationally, the mean EBITDA margin is probably between 20% and 23%. And we think that we should be able — that business should be able to get in that region probably in the medium term. So like three to five years, that business should have — should have enough scale that it should start really kind of generating some strong profitability.
Thanks, Tim. And I think that covers all the questions that we’ve received. So I’m going to hand over to Calvo for some closing remarks.
Ladies and gentlemen, we hope you find our feedback useful and would like to invite you to reach out to our IR team if you have any further questions. That concludes our conference call today. Thank you again for joining us today. Thank you, everyone.
Thank you very much, sir. Ladies and gentlemen, you may disconnect.