Knocked by a stronger rand, pay television network M-Net reported a 97 cent loss per share for the six months ended September, compared with a headline profit of 24,4 cents a share for the previous comparable half-year.
“M-Net experienced mixed fortunes for the six months under review. In South Africa the total subscriber base has stabilised at just above the one million mark, but the company continues to derive benefits from the migration of analogue subscribers to the digital platform,” the television group stated on Thursday.
It added that advertising revenues also remained under pressure, mainly the result of the declining analogue subscriber base.
“The strong rand has had a negative impact on the reported results. M-Net earns considerable revenues in United States dollars from channel services provided to countries elsewhere in Africa. The stronger rand has resulted in those revenues translating into fewer rands.
“If the rand continues to hold its own against the US dollar over the long term, this will result in reduced costs as M-Net has considerable dollar-based input costs. However, this benefit to the income statement will only phase in over time as the company has a policy to cover forward its dollar commitments up to two years,” it stated.
It said the downturn in advertising revenue and the decline in foreign currency earnings measured in rand were reflected in the fact that revenues for the period amounted to R696-million, a decrease of 4% from the same period last year.
“In addition, the benefit of the stronger rand was passed to subscribers as no fee increases were implemented for the analogue base and only a nominal increase for digital subscribers.”
It added that the adoption of accounting standard AC 133 with effect from April 1 2003, which deals with the accounting of foreign currency transactions and financial instruments, had led to reduced earnings for the period and might continue to cause severe volatility in reported earnings in the future.
“AC 133 compels M-Net to value outstanding forward exchange contracts on a mark-to-market basis. This resulted in a net charge of R322-million, R460-million less deferred income taxes of R138-million, to retained earnings on April 1 2003.
“AC 133 also requires M-Net to charge the income statement with programming and other foreign costs based on the actual market rate on the date of acquisition. Movements in the mark-to-market valuation of foreign exchange contracts are charged to the income statement. The result is that the income statement for the six months ended September 30 2003 reflects a net fair value loss on financial instruments of R237-million, of which R190-million is unrealised.”
The group’s net loss for the period was R2-million compared with a net profit of R62-million for the same period last year.
Looking ahead, M-Net said advertising revenues were expected to remain under pressure as the analogue subscriber base continued to migrate to the digital bouquet.
“However, this is offset by increased margins earned from subscribers to the digital service.
“The outlook for the remainder of the financial year will largely be influenced by the strength of the rand. As the currency continues to strengthen or weaken earnings are likely to be considerably impacted. Operating expenditure remains in line given the stringent focus on cost controls. Management will continue to focus on attaining operational efficiencies and protecting margins.” — I-Net Bridge