talk Satellite

Eutelsat First Half 2014-2015 Results

12 February 2015

The Board of Directors of Eutelsat Communications (ISIN: FR0010221234 – NYSE Euronext Paris: ETL) has reviewed the financial results for the half-year ended 31 December 2014.

Key financial highlights	6 months to Dec 2013	6 months to Dec 2014	Change
Revenues
Reported - €m	647.4	722.8	+11.6%
Restated - €m	687.6	722.8	+4.3%¹
Profitability
EBITDA^{2 -} €m	501.3	559.6	+11.6%
EBITDA margin -	77.4%	77.4%	n.c.
Group share of net income - €m	147.3	160.7	+9.1%
Diluted earnings per share - €	0.670	0.729	+ 8.8%
Financial structure
Net debt - €m	2,793.9³	3,807.0	+36.3%
Net debt / EBITDA	2.8⁴	3.5	-
Backlog - €bn	5.3	6.1	+14.4%

Commenting on the first half, Michel de Rosen, Chairman and CEO of Eutelsat Communications, said: ”Eutelsat’s half year results were in line with objectives, with like-for-like revenue growth of 4.3%, and an EBITDA margin of 77.4%. Video revenues are benefiting from additional capacity launched last year and from the positive dynamics of the Latin American market. Revenue trends in Data showed a slight improvement, while Value-Added Services reflected uptake on KA-SAT. In Government Services new contracts offset the lower renewals of the previous twelve months. A year on from its consolidation, Satmex continues to deliver in line with expectations and contributed positively to all applications.

Based on performance of the first half, we remain on track to meet our full year objectives, in the context of a tougher comparison basis in the second half and the current environment in Russia. Our targets for the next two years are also confirmed. We are confident in the longer-term demand trends in our industry, and we are investing in our future development with industry-leading innovation projects like Eutelsat Quantum”.

VIDEO APPLICATIONS (65% of revenues)
Revenues from Video Applications were up 3.5% in the first half to €452.4 million. This reflected the entry into service of the Express-AT1 satellite, which was operational for the full semester, resources added at the 7°/8° West position in September 2013 and the good performance of Satmex.
Significant contracts included the multi-year renewal of seven transponders at Eutelsat’s HOT BIRD video neighbourhood by nc+, the Polish Pay-TV operator.

At 31 December 2014, the total number of channels broadcast by Eutelsat satellites stood at 5,741. Excluding Satmex (307 channels broadcasting at 31 December 2014), the channel count was up 13% year-on-year. HDTV penetration continued to increase, representing 11.4% of channels at 31 December 2014 compared to 10.6% a year before. A total of 657 channels were broadcasting in High Definition across Eutelsat’s fleet at the end of the first half, up from 508 a year earlier.

Research published at the beginning of January by the Eutelsat TV Observatory showed that the number of homes receiving channels broadcast by eight of Eutelsat’s flagship television neighbourhoods serving Europe, Russia, North Africa and the Middle East now stands at 274 million, up by 32% since 2010, of which 138 million receive channels from the HOT BIRD neighbourhood. Direct-to-Home remains the leading reception mode across the combined Europe, Russia, North Africa and Middle East footprint. The number of Direct-to-Home households is growing, up by 44% to 160 million homes between 2010 and 2014.

DATA SERVICES (15% of revenues)
Data Services first half revenues stood at €107.4 million, down 0.7% year-on-year. The take-up of capacity on EUTELSAT 3B with clients including some telecom operators in the Middle-East, and the ongoing solid performance of Satmex offset less favourable trends in general in the EMEA region.

On a sequential quarterly basis, the underlying trend showed an improvement, with a slight uptick in growth in the second quarter, following three quarters of stability on a like-for-like basis.

VALUE-ADDED SERVICES (7% of revenues)
Value-Added Services first half revenues amounted to €51.4 million, up 18.8%. Uptake on KA-SAT continued albeit at a slower pace, with 175,000 broadband terminals activated at 31 December 2014, up from 124,000 a year earlier, and 166,000 at 30 September 2014. The distribution network for the Tooway consumer broadband service was further expanded with agreements signed with OTE in Greece and Telekom Austria Group in Central and Eastern Europe.

As in previous years the second quarter reflected the seasonality of the maritime market.

1 i) All revenue growth rates are expressed in comparison with restated figures for the corresponding period of the previous fiscal year, are at constant currency and exclude non-recurring revenues. Please refer to the appendix for more detail; ii) the share of each application as a percentage of total revenues is calculated excluding “other revenues” and “non-recurring revenues”.

GOVERNMENT SERVICES (13% of revenues)
First half revenues from Government Services stood at €92.2 million, up 2.7%. This growth reflected new contracts on EUTELSAT 33B, EUTELSAT 36B and EUTELSAT 48D, the good performance of Satmex and the impact of the lower level of contract renewals in the last twelve months.

OTHER2 AND NON-RECURRING REVENUES
Other revenues amounted to €19.4 million compared with €14.5 million at 31 December 2013, reflecting notably revenues related to the agreements with SES at 28°5 East.
There were no non-recurring revenues at 31 December 2014.

OPERATIONAL AND LEASED TRANSPONDERS
The number of operational transponders at 31 December 2014 was up by 178 year-on-year to 1,033, reflecting mainly the entry into service of Express-AT1 and EUTELSAT 3B as well as the integration of Satmex.
The fill rate stood at 76.3% compared to 74.8% a year earlier, reflecting mainly the entry into service of Express-AT1, which was fully leased, the integration of Satmex, whose fill is rate above Group average and further take-up on KA-SAT.

The slight increase of fill rate compared to the end of September 2014 reflected notably the ramp-up of new capacity at 3° East (EUTELSAT 3B) and 7° East (EUTELSAT 7B).

ORDER BACKLOG
The order backlog5 stood at €6.1 billion at 31 December 2014, up by 14% year-on-year including Satmex and by 8% excluding Satmex. It was equivalent to 4.4 times 2013-14 revenues. Video Applications represented 84% of the backlog.

The slight decline in backlog compared with end-September reflects, on one hand, new contracts at 3° East, 7° East and 16° East, and on the other, backlog consumption. However, the renewal at HOT BIRD capacity with nc+ was not integrated into the backlog at end-December. Including the latter, the level of backlog would have been stable versus end-September..

PROFITABILITY
EBITDA MARGIN: 77.4%
Group EBITDA amounted to €560 million compared to €501 million at 31 December 2013, reflecting the integration of Satmex and the slight beneficial effect of USD appreciation.

The EBITDA margin stood at 77.4%, unchanged compared to last year. As in previous years, the phasing of operating costs was marginally favourable to the first half.

GROUP SHARE OF NET INCOME: €161 MILLION
Group share of net income stood at €161 million versus €147 million a year earlier, a 9.1% increase and represented a margin of 22.2%.
This reflected mainly:
 The increase in EBITDA;
 Other operating expenses of -€2 million compared with income of €8 million last year;
 Depreciation and amortisation of €232 million (up €42 million year-on-year) principally reflecting the integration of Satmex and the entry into service of EUTELSAT 25B (October 2013), Express-AT17 (May 2014), Express-AT27 (July 2014) and EUTELSAT 3B (July 2014);
 A financial result of -€56 million versus -€65 million a year earlier, reflecting the full impact of the €930 million bond raised in December 2013, a positive variation in the foreign exchange result of €19 million (income of €15 million in first half 2014-15 versus negative result of -€4 million a year earlier) and higher capitalised interest;
 A tax rate of 40.4% versus 42.6% in first half 2013-14 which had included a €5.6 million settlement relating to a French tax audit.

STRONG CASH FLOW GENERATION
First half net cash flows from operating activities amounted to €504 million, representing 70% of revenues, versus €325 million in First Half 2013-14. This reflected mainly the increase in EBITDA (€58 million) and a reduction in tax paid (€85 million) relating to the evolution of the pretax profit and the timing of tax payments.

Capital expenditure amounted to €205 million in First Half 2014-15 compared to €148 million a year earlier, reflecting the consolidation of Satmex over the full period as well as the phasing of various satellite programmes.

FINANCIAL STRUCTURE
At 31 December 2014, net debt was broadly stable at €3,807 million versus €3,779 million at 30 June 2014. Free cash-flow generation largely offset the dividend payment (€87 million), interest and other fees (€30 million) and an increase in financial leases (€111 million) linked notably to the entry into service of Express-AT2. The net debt to EBITDA ratio stood at 3.5 times, stable on end-June 2014.

The weighted average maturity of the Group’s debt stood at 3.9 years, compared to 4.4 years at 30 June 2014. The average cost of debt after hedging was 3.8% in the first half.

Liquidity remains strong, with cash of €469 million and undrawn credit lines of €650 million.

Leased capacity leading to recognition of assets in the balance sheet calculated on the basis of the discounted Net Present Value of future payments over 15 years.

OUTLOOK
Based on the performance of the First Half, Eutelsat remains on track to meet its full year objective of growth of around 4% at constant currency, excluding non-recurring revenues and on a pro-forma basis8, in the context of a tougher comparison basis in the second half and the current environment in Russia. The EBITDA margin remains targeted at above 76.5%.

All other targets published in July 2014 are also confirmed on the basis of the nominal deployment plan published hereunder.

FLEET DEPLOYMENT PROGRAMME
The following operations took place during the period:
 The Express-AT2 satellite launched on 16 March 2014 went into operation in early July 2014 at 140° East. Eutelsat commercialises capacity on this satellite under a partnership agreement with RSCC.
 EUTELSAT 3B, launched on 25 May 2014, entered commercial service in early July 2014 and replaced the EUTELSAT 3A and EUTELSAT 3D satellites at 3° East.
 In mid-July 2014, EUTELSAT 3D was relocated to 7° East where it is now co-positioned with EUTELSAT 7A and has been renamed EUTELSAT 7B.
 EUTELSAT 3A was first relocated to operate in inclined orbit at 8° West and subsequently de-orbited at end-October 2014.
 EUTELSAT 48C was de-orbited in November 2014.
 EUTELSAT 16B was de-orbited in February 2015.

Eutelsat Quantum
In December 2014, Eutelsat announced the development of the software-defined "Eutelsat Quantum" class of satellites setting new standards in terms of coverage, bandwidth, power and frequency configurability. This premium capacity will enable customers to specifically address regions where end-users in government, mobility and data markets are located and to adapt to their changing needs. The first satellite, to be launched in 2018, will be manufactured by Airbus Defense and Space.

DIVIDEND PAYMENT
The Annual General Meeting of Shareholders held on 7 November 2014 approved the payment of a dividend of €1.03 per share for the financial year ended 30 June 2014, with the option for shareholders to receive the entire dividend either in cash or in new shares (scrip dividend). 66% of the rights were exercised in favour of the scrip dividend, leading to the issuance of 6,858,356 new shares on 11 December 2014, thereby increasing Eutelsat Communications’ share capital to 226,972,338 ordinary shares. Cash dividends were paid on 11 December 2014 for a total of €78 million.

Following these operations, Bpifrance Participations held 26.03% and China Investment Corporation 6.84% of the share capital.

RECENT DEVELOPMENTS
Environment in Russia
The general economic environment in Russia and in particular the sharp fall in the value of the rouble has put pressure on Eutelsat’s Russian customers with euro-denominated contracts. In consequence, Eutelsat is reviewing the terms of certain contracts while this situation persists. Russia represents some 5% of total revenues.

ViaSat Brazil
Following a material breach by ViaSat Brazil, Eutelsat terminated the contract signed with ViaSat Brazil for the Ka-band payload on EUTELSAT 3B. The capacity has been taken by another customer, with no impact on revenues.
ViaSat Brazil is seeking redress from Eutelsat before the commercial court of Rio de Janeiro, which Eutelsat is vigorously contesting.