[June 27, 2016] |
|
Eutelsat Communications: New Strategic Priorities and Financial Objectives
Regulatory News:
In a context of slowing industry-wide momentum, Eutelsat (News - Alert) Communications
(Paris:ETL) (ISIN: FR0010221234 - Euronext Paris: ETL) is announcing a
review of its strategic priorities and financial objectives.
Rodolphe Belmer, Chief Executive Officer commented: "It has become
clear in recent months that the traditional businesses within the Fixed
Satellite Services sector are facing a context of slowing industry-wide
momentum. To face this lower growth environment, we are implementing an
adaptation of our strategic priorities and financial objectives.
Our immediate priority will be to maximize the free-cash-flow generation
of our core businesses. We are confident in our ability to generate a
level of discretionary free cash flow in the next three years, which
will enable us to serve a stable to progressive dividend and reduce
leverage, in line with our commitment to our investment grade rating. We
will continue to invest selectively to prepare for a return to growth by
building on our core Video business and capturing the longer term
opportunities in Connectivity. Our objective is to return to broad top
line stability as early as FY 2017-18."
ADAPTING STRATEGY TO EVOLVING MARKET DYNAMICS
In recent months it has become clear that the traditional businesses
within the Fixed Satellite Services sector are facing slowing
industry-wide momentum, reflecting broadly stable demand in developed
markets (Europe), and economic headwinds in economies such as Russia and
Latin America, only partly offset by more robust demand in Sub-Saharan
Africa, the Middle-East and North Africa and Asia. Competition continues
to intensify in the Data Services segment, where we anticipate ongoing
downward pricing pressure.
Against this backdrop, Eutelsat has undertaken a review of its strategic
priorities and financial objectives, leading to the adoption of a
two-step strategy, based around the following priorities:
-
Step one: Immediately implement measures to maximize
free-cash-flow generation of our core businesses (Video, Data and
Government Services);
-
Step two: At the same time prepare for a return to growth by
building on our core Video business and capturing the longer-term
potential in Connectivity.
STEP ONE: maximize free-cash-flow generation of our core businesses
Eutelsat's focus in the immediate term will be to maximize the free cash
flow generation of its existing businesses in order to secure ongoing
deleveraging in line with its commitment to its Investment Grade rating,
deliver stable to progressive dividend to shareholders and finance
targeted investments to pave the way for a return to growth.
CAPEX Reduction
Capex savings will be achieved without impacting the current deployment
plan and attendant future revenues. Savings will be driven by the
implementation of a 'design to cost' approach, a focus on hosted payload
and partnership or "condosats" opportunities when appropriate, as well
as capitalization on industry-wide efficiency improvements. Ground capex
will be placed under strict control.
In consequence, estimated average annual cash capex for the period July
2016 to June 2019 will be reduced to €420 million (versus an average of
€500 million previously for the period July 2015 to June 2018).
Cost of debt optimization
The €500 million bond issue at a 1.125% coupon in June 2016 to
refinance, along with cash in the balance sheet, the €850 million March
2017 bond, will lead to savings of c.€30 million per annum. Elsewhere, a
swap-lock has been negotiated in anticipation of the January 2019 €800
million bond maturity, while the Eutelsat Communications term loan has
been extended for 12 months to 2021. Cumulated annual savings from
January 2019 are anticipated in the region of €50million.
OPEX (News - Alert) containment
Operating cost containment measures are under consideration, notably
procurement and SG&A expenses, with a view to underpinning our EBITDA
margin above a level of 75%.
Optimize asset portfolio
Eutelsat will continue to consider opportunities to streamline its
portfolio of assets, following on from the divestment of Alterna'TV in
April 2016. At the same time it will seek partnerships for some of its
broadband projects, such as ViaSat (News - Alert) in Europe and Inframed in Africa.
Streamlining the organization
Eutelsat's organization is being realigned along the following five
business lines: Core businesses (Video, Data and Government services)
and Connectivity (Fixed Broadband and Mobile Connectivity). Measures
will be implemented to further strengthen the quality of the salesforce,
while the metrics on which key personnel are measured will be aligned to
our cash flow generation targets.
Within this framework, Eutelsat is adapting the strategies within its
three core businesses (Video, Data and Government services) in order to
optimize revenues based on its assumptions for their current and future
operating contexts.
Video
Demand in the Video segment should rise modestly over the next five
years. It should see continued growth in emerging markets, in particular
MENA and Sub-Saharan Africa where Eutelsat has a strong footprint,
notably driven by increasing channel count. The trend in Europe is
expected to be broadly stable with HD and Ultra HD ramp-up broadly
offsetting improving encoding and compression techniques.
Against this backdrop, Eutelsat's strategy in developed markets will be
to optimize value, notably by increasing direct access to customers by
integrating or reorganizing indirect distribution, stimulating HD and
Ultra HD take-up and implementing more segmented pricing strategies.
At the same time Eutelsat will continue to capture growth in emerging
markets, benefiting from recent investments at the 7/8°West and 36°East
positions, and investing selectively notably at 7°East.
Data Services
Global demand in volume for Data Services will continue to grow, driven
by increasing connectivity needs. However, this segment will remain
structurally challenged, with the arrival of new technologies,
particularly large HTS systems compounding an already oversupplied
market and leading to increasing pricing pressure. Certain verticals,
notably point-to multipoint applications, which currently represent more
than half of Eutelsat's Data Services revenues, should be more resilient
in the short- to medium-term.
Eutelsat will partly offset the impact of lower pricing with a series of
measures including prioritizing the ramp-up of existing capacity by
adapting its pricing strategies where appropriate, focusing on less
competitive geographies, complex networks and less price-sensitive
customers, pursuing opportunities in verticals where satellite has
untapped potential and leveraging on a differentiated offer (EUTELSAT
QUANTUM).
Government Services
Demand by the US Government appears to be stabilizing, albeit at prices
well below the previous cycle. Eutelsat will seek to develop new
sub-segments. The arrival of EUTELSAT QUANTUM in 2019 will enable us to
develop a differentiated value proposition.
More generally, Government Services, like Data, will be impacted by the
arrival of HTS, although it is expected to be slower to migrate. On the
other hand development opportunities exist in regions such as Europe,
Asia and MENA, as well as in non-military verticals.
These measures will underpin our objective of broadly stable revenues in
FY 2017-18 and a return to modest growth in FY 2018-19.
STEP TWO: Returning to growth by building on our core Video business
and capturing the longer-term potential in Connectivity
Eutelsat will return to growth with two horizons: in the medium term
(from FY 2018-19 onwards) by building on our core Video business to
accelerate growth, and in the longer term by preparing to capture the
opportunity in Fixed Broadband and Mobile Connectivity (from FY 2020-21
onwards).
Video
Video by satellite will continue to grow and our expectation is that in
the longer term, video distribution will be globally mostly split
between satellite and IPTV (News - Alert).
Additional sources of demand will be created as broadcasters increase
the level of outsourced services. In this context, deeper integration
within the IP ecosystem and harnessing existing IP-based technologies
will enable satellites to enhance the end-viewer experience, further
increasing customer adhesion and generating opportunities to sell
additional services for broadcasters, Pay-TV operators and advertisers.
Fixed Broadband
The potential of Fixed Broadband by satellite is significant,
underpinned by poor infrastructure in emerging markets and in certain
developed markets, and the cost-competitiveness of satellite versus
terrestrial technologies in low-density areas. The challenge for the
satellite industry will be to deliver a fiber-like service both in terms
of quality and price. This will be achieved with the advent of VHTS
(Very High Throughput) satellites at the beginning of the next decade.
In the meantime, Eutelsat will pave the way for mass-market adoption, by
rolling-out different commercial models on its existing and committed
capacity (KA-SAT and the Russian and African broadband projects), and
working with industrial partners to reduce cost of terminals, in order
to determine an appropriate level of investment from 2018 onwards.
Mobile Connectivity
In the next 10 years, Mobility has the potential to evolve from a niche
to a mass-market, driven by an increasing number of connected devices,
the take-up of more bandwidth-hungry usages leading to exponential rise
in data consumption per user and the extension in the longer term of
mobility from aero and maritime to land and connected cars.
Eutelsat will adopt a step-by-step approach, leveraging its existing
strong positions at 172° East and 10° East, and developing aero mobility
on KA-SAT. We will focus on securing the prerequisites for mass-market
distribution, notably via selective investments to ensure we have the
appropriate capacity and seeking partnership deals with all stakeholders.
FINANCIAL OUTLOOK
Based on a continuation of trends observed in the Third Quarter, notably
a deteriorated economic context in several emerging markets, in
particular Latin America, where much of the recently launched capacity
has been targeted and intensifying competitive pressure for Data
Applications in all geographies, we confirm that Full Year 2015-16
Revenues3 will be flat, with an EBITDA margin around 76%.
Full Year 2016-17 will remain impacted by these headwinds, and will also
reflect the impact of lower renewals in Government Services as well as a
€25-30 million decline in revenues at the HOT BIRD position, notably due
to the proactive rationalization by Eutelsat of contractual arrangements
with several distributors. In consequence, revenues are expected in the
region of -3% to -1%, with an EBITDA margin above 75%.
In FY 2017-18, while data revenues will be under pressure, this should
be offset by modest growth in Video and growth in Broadband and Mobility
on the back of the capacity on EUTELSAT 36C, Amos 6 (Broadband for
Africa) and EUTELSAT 172B. Our objective therefore is to return to
broadly stable revenues, with an EBITDA margin above 75%. In FY 2018-19,
we expect to deliver modest growth, also with an EBITDA margin above 75%.
Capital expenditure will be reduced from an average of €500 million per
annum for the period July 2015 to June 2018 to an average of €420 million4
per annum for the period July 2016 to June 2019.
Discretionary Free Cash Flow5 is expected to see CAGR in
excess of 10% over the same three year period. On this basis, we remain
committed to reducing our net debt to below 3.3X EBITDA and to our
investment grade rating.
At the same time, we will adopt a stable to progressive dividend policy
(versus a payout ratio in the range of 65-75% of net income).
Details for conference call
Eutelsat Communications will hold a presentation of this strategic
update on Monday, 27 June 2016 at its headquarters, 70, rue Balard,
75015 Paris, starting at 9:00 CET.
To connect to the conference call, please use the following numbers:
-
France: +33(0)1 76 77 22 26
-
UK: +44(0)20 3427 1909
Access code: 1874699#
A live presentation will be also available by webcast via the following
link: https://pgi.webcasts.com/starthere.jsp?ei=1108260 You
can test your system via this link: https://event.webcasts.com/test
Instant replay will be available from 27th June, 03:00pm CET to 28th
July, midnight
-
France: +33(0)1 74 20 28 00
-
UK: +44(0)20 3427 0598
Access code: 1874699#
Financial calendar
The financial calendar below is provided for information purposes only.
It is subject to change and will be regularly updated.
- 29 July 2016: Full-Year 2015-16 results.
About Eutelsat Communications:
Established in 1977, Eutelsat Communications (Euronext Paris: ETL, ISIN
code: FR0010221234) is one of the world's leading and most experienced
operators of communications satellites. The company provides capacity on
39 satellites to clients that include broadcasters and broadcasting
associations, pay-TV operators, video, data and Internet service
providers, enterprises and government agencies.
Eutelsat's satellites provide ubiquitous coverage of Europe, the Middle
East, Africa, Asia-Pacific and the Americas, enabling video, data,
broadband and government communications to be established irrespective
of a user's location.
Headquartered in Paris, with offices and teleports around the globe,
Eutelsat represents a workforce of 1,000 men and women from 37 countries
who are experts in their fields and work with clients to deliver the
highest quality of service.
For more about Eutelsat please visit www.eutelsat.com
______________________________________________________________________________________________
Disclaimer
The forward-looking statements included herein are for illustrative
purposes only and are based on management's current views and
assumptions. Such forward-looking statements involve known and unknown
risks. For illustrative purposes only, such risks include but are not
limited to: postponement of any ground or in-orbit investments and
launches including but not limited to delays of future launches of
satellites; impact of financial crisis on customers and suppliers;
trends in Fixed Satellite Services markets; development of Digital
Terrestrial Television and High Definition television; development of
satellite broadband services; Eutelsat Communications' ability to
develop and market Value-Added Services and meet market demand; the
effects of competing technologies developed and expected intense
competition generally in its main markets; profitability of its
expansion strategy; partial or total loss of a satellite at launch or
in-orbit; supply conditions of satellites and launch systems; satellite
or third-party launch failures affecting launch schedules of future
satellites; litigation; ability to establish and maintain strategic
relationships in its major businesses; and the effect of future
acquisitions and investments.
Eutelsat Communications expressly disclaims any obligation or
undertaking to update or revise any projections, forecasts or estimates
contained in this presentation to reflect any change in events,
conditions, assumptions or circumstances on which any such statements
are based, unless so required by applicable law.
1 At constant currency and perimeter and excluding
non-recurring revenues. 2 Net cash-flow from operating
activities - Cash Capex - Interest and Other fees paid net of interests
received 3 At constant currency and perimeter and
excluding non-recurring revenues. 4 This includes
capital expenditures and payments under existing export credit
facilities and under long-term lease agreements on third party capacity. 5
Net cash-flow from operating activities - Cash Capex - Interest and
Other fees paid net of interests received
View source version on businesswire.com: http://www.businesswire.com/news/home/20160626005071/en/
[ Back To Mobile World Congress's Homepage ]
|