Eutelsat Communications Q1 2016-17  

27 October 2016

Eutelsat Communications reported revenues for the first quarter ended 30 September 2016.

Three months to 30 September 2016

Commenting on the First Quarter, Rodolphe Belmer, CEO, said: “First quarter revenues were fully in line with our expectations, and we are on track to meet our objectives for the full year. We have made a number of important steps along our new strategic roadmap, notably the procurement of the EUTELSAT 5 West B satellite under the ‘design-to-cost’ policy, generating significant capex savings, as well as progress on non-core asset disposals with Hispasat and Wins. On the operational side, I would highlight the rapid execution of the rationalization of distribution at the HOTBIRD orbital position and the strong renewal rate with the US Department of Defense during the Fall round,confirming the stabilisation in Government Services. In connectivity, we have seen a number of positive developments including the launch of the Russian broadband service on EUTELSAT 36C, the securing of capacity enabling us to launch our African broadband initiative with limited delay despite the loss of the Ka payload on AMOS-6 satellite, and the signing of several contracts for in-flight connectivity highlighting the quality of our in-orbit resources.

We are focused on optimising the revenue potential of our existing assets and maximising discretionary free-cash-flow generation, and we are working on additional measures to this end, notably operating cost savings, with the objective of reducing leverage, investing selectively in future growth opportunities and delivering an attractive shareholder remuneration.”

VIDEO APPLICATIONS (63% of revenues)

First quarter revenues for Video Applications amounted to €224.3 million, down 1.3% like-for-like. This reflected on one hand additional revenues generated by incremental capacity launched last year (EUTELSAT 8 West B in MENA and EUTELSAT 36C in Sub-Saharan Africa) and, on the other, lower revenues at the HOTBIRD position mainly related to the rationalisation of empty capacity in the hands of resellers, as well as lower revenues in professional Video.

At 30 September 2016, the total number of channels broadcast on the Eutelsat fleet stood at 6,336, up 8.2% year-on-year. HD penetration continued to grow, at 940 channels, up from 721 a year earlier andrepresenting 14.8% of total channel-count compared to 12.3%.

DATA SERVICES (16% of revenues)

First quarter revenues for Data Services stood at €56.8 million, down by 2.8% like-for-like. This reflected on one hand the full-quarter contribution of the Ka-band payload on EUTELSAT 65 West A which entered into service in May, and on the other, the early termination of the contract for Ka-band capacity on EUTELSAT 3B in December 2015 as well as the ongoing tough environment for this application in all geographies.

VALUE-ADDED SERVICES (8% of revenues)

First quarter revenues for Value-Added Services amounted to €29.4 million, up 8.3% like-for-like, reflecting mainly a positive one-off related notably to the phasing of payments by a specific customer.

The number of subscribers on KA-SAT stood at 179,000 compared to 181,000 at end-June and 190,000 a year earlier. ARPU trends remained well oriented.

The Russian consumer broadband service was launched on the EUTELSAT 36C satellite in July, and a distribution agreement has been secured with Tricolor TV.

On 1^st September, Spacecom’s AMOS-6 satellite was lost following a launch pad explosion. Eutelsat had contracted a multi-year agreement to lease the satellite’s Ka-band payload covering Sub-Saharan Africa, with a view to launching broadband services from early 2017. The unmitigated impact on revenues was estimated at around €5 million in FY 2016-17, €15 million in FY 2017-18 and €25-30 million in FY 2018-19.

On 27 October, Eutelsat concluded a deal with Yahsat to lease ka-band capacity. In consequence, the African Broadband initiative will be rolled out during the first four months of calendar 2017 with only a slight delay relative to the original timetable and enable Eutelsat to revert fully to the original business plan in FY 2017-18 and FY 2018-19.

In Mobility, SAS and Finnair will use capacity on the KA-SAT satellite to connect their short and medium-haul fleets in the context of a commercial agreement with ViaSat.

GOVERNMENT SERVICES (13% of revenues)

First quarter revenues for Government Services stood at €47.1 million, a decline of 10.7% year-on-year, reflecting the effect of lower renewals in the previous fiscal year.

The renewal rate for the Fall 2016 campaign with the US Department of Defense stood at over 90% considerably above the 65% renewal rate of the Spring. It reflected broadly stable volumes and modest price softening.

Moreover, new contracts representing four 36-MHz equivalent transponders were also signed, confirming prospects of a stabilisation in this vertical.

OTHER AND NON-RECURRING REVENUES

Other revenues^[4]amounted to €27.1 million in the First Quarter compared with €16.7 million last year. In addition to the revenues related to the agreements with SES at 28.5° East, they included anticipated fees in respect of technical and engineering services provided to a third party operator and termination fees related to the rationalisation of the distribution at Hotbird.

There were no non-recurring revenues in the first quarter.

OPERATIONAL AND LEASED TRANSPONDERS

The number of operational 36 MHz-equivalent transponders stood at 1,327 at 30 September 2016, almost unchanged compared to 30 June 2016. Year-on-year they rose by 152 units, reflecting mainly the entry into service of EUTELSAT 8 West B, EUTELSAT 115 West B, EUTELSAT 36C, EUTELSAT 9B and EUTELSAT 65 West A.

The fill rate stood at 71.5% at 30 September 2016 compared to 77.6% a year before, mostly reflecting the entry into service of the abovementioned new capacity. On a sequential basis, the fill rate showed a slight improvement notably thanks to new contracts in Government Services.

Note: Based on 36 MHz-equivalent transponders excluding high throughput capacity (KA-SAT 82 spotbeams, EUTELSAT 3B 5 Ka-band spotbeams, EUTELSAT 65 West A 24 Ka-band spotbeams and EUTELSAT 36C 18 Ka-band spotbeams).ORDER BACKLOG

The order backlog ^[7] stood at €5.4 billion at 30 September 2016, versus €6.0 billion a year earlier and €5.6 billion at end June 2016. The sequential decline in backlog reflected natural consumption.

The backlog was equivalent to 3.6 times 2015-2016 revenues. Video Applications represented 85% of the backlog.

FINANCIAL OBJECTIVES
Based on the performance of the First Quarter, all financial objectives published on 29 July 2016 are confirmed.

Revenues for FY 2016-17 (at constant currency and perimeter, excluding non-recurring revenues) are expected in the range of -3% to -1%. In FY 2017-18 they are expected broadly flat with a return to modest growth in FY 2018-19. For each of FY 2016-17, FY 2017-18 and FY 2018-19 the EBITDA margin is expected to remain above 75%.

Cash Capex will stand at an average of €420 million ^[8] per annum for the period July 2016 to June 2019. Discretionary Free Cash Flow^[9] is expected to see three-year CAGR in excess of 10%, with FY 2015-16 as the base year^[10]. The Group is committed to maintaining a sound financial structure to support its investment grade credit rating and aims at a net debt / EBITDA ratio below 3.3x.

It also commits to serving a stable to progressive dividend to shareholders.

FLEET DEVELOPMENTS

P

CHANGES IN THE FLEET

In August 2016, EUTELSAT 70D reached the end of its operational life and was deorbited,

EUTELSAT 70C is currently under relocation.

CORPORATE GOVERNANCE

The Board of 28 July 2016 called on the shareholders present at the Annual General Meeting of 4 November 2016 to vote notably on the following resolutions:

Approval of the accounts;

Dividend relating to Financial Year 2015-16;

Renewal of the mandates of Michel de Rosen, Carole Piwnica, and Miriem Bensalah Chaqroun;

Appointment of the ‘Fonds Stratégique de Participations’ ^[11] as a Board Member. Subject to the vote of the Ordinary General Meeting, FSP will be represented by Dominique D’Hinnin;

Appointment of Rodolphe Belmer as a Board member.

APPENDICES

Quarterly reported revenues by business application

Proforma revenues by business Application

The table below shows proforma revenues for fiscal year 2015-16 reflecting the disposals of Alterna’TV deconsolidated from April 2016, Wins/DHI from September 2016, and DSAT Cinema ^[12] from November 2016.