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Half Year 2017 Results: Solid Performance on Execution of SES's Differentiated StrategySES S.A. (Euronext Paris:SESG) (LuxX:SESG) announced financial results for the six months ended 30 June 2017. This Smart News Release features multimedia. View the full release here: http://www.businesswire.com/news/home/20170727006621/en/ Half Year 2017 Results: Solid Performance on Execution of SES's Differentiated Strategy (Photo: Business Wire) Delivering return to growth in revenue and profitability
Improving trend in SES Video and strong growth in SES Networks delivers stable verticals development
Karim Michel Sabbagh, President and CEO, commented: "SES continues to make a positive start to 2017 and is well positioned to generate sustained growth and improving returns. SES Video continues to deliver differentiated services and enhance the viewing experience, with the proportion of integrated solutions nearly doubling versus last year. The improving trend in Q2 2017 underpins our stable outlook for 2017 before the temporary impact of changes due to launch schedule and satellite health, which are expected to result in a slight decline. SES Networks' distributed network capabilities are driving strong growth across our data-centric verticals, expanding with global fixed data, aeronautical, maritime and government clients. The development agreement, signed today, with Boeing is the latest milestone in delivering next generation technology that will form the basis for SES's future network and will expand the future addressable market." _________________________
1 Comparative figures are restated at constant FX to
neutralise currency variations and assuming (on a pro forma basis) that
RR Media and O3b had been consolidated from 1 January 2016 OPERATIONAL REVIEWS At 30 June 2017, SES's fully protected contract backlog was EUR 7.5 billion (30 June 2016: EUR 7.3 billion). The substantial backlog is the result of the successful commercial activity across SES's two natural business units - SES Video and SES Networks. SES Video: 67% of group revenue (H1 2016: 70%)
As expected, a significant improvement in the year-on-year (like-for-like) development between Q1 2017 (-4.2%) and Q2 2017 (-1.9%) led to an overall reduction of 3.1% for H1 2017, compared with the prior period. This resulted from the impact of higher periodic revenue, predominantly in Q1 2016, beginning to progressively normalise over the course of 2017. Q2 2017 benefited from the signing of new agreements covering the existing fleet and recently launched capacity. At 30 June 2017, SES's global fleet carried a total of 7,741 TV channels, representing a year-on-year increase of 4%. SES's HDTV channel count grew by 6%, year-on-year, to 2,587 channels, while the SES satellite network now also carries 20 commercial UHD channels (30 June 2016: 16), including regional variations. Consequently, HD penetration increased from 32.7% to 33.4% in the last 12 months. Over the same period, the proportion of total channels broadcast in MPEG-4 increased from 58.9% to 63.5% of SES's total TV channels. The main highlights in Video included:
MX1 has continued to build market traction, offering a differentiated combination of end-to-end, linear and non-linear, media solutions. Compared with H1 2016, the proportion of reported revenue from integrated media solutions (combining capacity and value-added services) has nearly doubled, supported by the acquisition of RR Media and the creation of MX1. The commercial highlights for MX1 included:
SES Networks: 33% of group revenue (H1 2016: 29%)
SES Networks comprises the Fixed Data, Mobility and Government verticals and integrates O3b's unique high throughput, low latency Medium Earth Orbit (MEO) constellation and distributed network capabilities. The progress in each of these data-centric verticals is discussed separately below. SES and Boeing have, today, signed a new agreement to develop innovative technology improvements aimed at delivering next generation technology that will form the basis for SES's future satellite fleet. Fixed Data: 13% of group revenue (H1 2016: 12%)
As the only multi-orbit and multi-frequency distributed network solutions provider, SES Networks has continued to secure new business opportunities, as well as scaling up services with existing, long-term tier one clients. H1 2017 revenue also benefited from periodic revenue of around EUR 9 million. SES Networks is focused on supporting the applications and networks of the future for a range of telecoms companies, mobile network operators, cloud-based services and corporate enterprises, where it can benefit from important elasticity of demand and significant growth opportunities. The main highlights in Fixed Data included:
Mobility: 8% of group revenue (H1 2016: 5%)
In the first half of 2017, SES has continued to expand its global aeronautical mobility business with the leading providers of inflight connectivity and entertainment. This included:
The agreements with GEE and Gogo reflect SES's unique approach of leveraging its global fleet, including non-station-kept satellites, to support growth opportunities across the Mobility sector. SES Networks continued to gain market traction and benefit from differentiated capabilities to deliver flexible and scalable connectivity network solutions in maritime, including:
Government: 12% of group revenue (H1 2016: 12%)
The main highlights in Government included:
Future satellite capacity and fleet update COMMITTED LAUNCH SCHEDULE
1) To be positioned using electric orbit raising (entry into service
typically around six months after launch) On 30 March 2017, SES-10 was successfully launched on board a SpaceX Falcon 9 rocket, becoming the first GEO satellite to launch on a flight-proven first-stage rocket booster, and entered into service in May 2017. On 18 May 2017, SES-15 was launched on a Soyuz rocket, and is expected to enter into service at the end of 2017. This spacecraft is SES's first hybrid with wide beam and high throughput capacity serving inflight connectivity and entertainment over North America. SES-15 also carries a Wide Area Augmentation System (WAAS) hosted payload for the U.S. Government. In June 2017, AMC-9 (48 total transponders) was affected by a significant anomaly, which resulted in an impairment charge of EUR 38.4 million against the spacecraft in the H1 2017 financial statements. SES was able to draw on its global fleet to rapidly restore customers' capacity. The impact on FY 2017 group revenue is expected to be between EUR 15 million and EUR 18 million, reflecting the reduction in the total number of available fleet transponders for future commercialisation. In July 2017, SES determined that, due to a recent anomaly, the available capacity on NSS-806 is reduced by 12 transponders. The impact on FY 2017 revenue is expected to be between EUR 7 million and EUR 9 million, reflecting the reduction in total available fleet transponders for future commercialisation. The impact of these anomalies is expected to be temporary as SES's fleet planning and new capacity from satellites expected to be launched within the next nine months will mitigate the short-term reduction in marketable capacity. The revenue impact from the combination of changes in satellite health status, as well as the updated launch schedule, will be mainly in the second half of 2017. This will predominantly be in Video and is expected to have a lower impact on FY 2018 revenue development. FINANCIAL REVIEW REVENUE BY MARKET VERTICAL
1) At constant FX and assuming RR Media and O3b had been consolidated
from 1 January 2016 Reported revenue was 9.6% higher than the prior period, including the contribution from RR Media (acquired on 6 July 2016) and O3b (consolidated on 1 August 2016). On a like-for-like basis (at constant FX and assuming that RR Media and O3b had been consolidated from 1 January 2016), the combination of an improving trend in SES Video and strong growth in SES Networks resulted in a stable development across the four market verticals. The overall revenue reduction of 1.5% compared with the prior year was entirely due to lower "Other" revenue. OPERATING EXPENSES AND EBITDA
1) At constant FX and assuming RR Media and O3b had been consolidated from 1 January 2016) Operating expenses were EUR 4.3 million (or 1.2%) higher on a like-for-like basis, mainly due to higher variable cost of sales associated with O3b and HD+ revenue growth. The group's fixed cost base was stable on a like-for-like basis, reflecting SES's long-term track record of continuous fixed cost optimisation. Reported EBITDA was 1.8% lower than the prior period (-2.8% like-for-like). The reported EBITDA margin of 65.5% compared to the H1 2016 margin of 73.1% as reported and 66.4% like-for-like. DEPRECIATION, AMORTISATION AND OPERATING PROFIT
1) At constant FX and assuming RR Media and O3b had been consolidated from 1 January 2016 Depreciation, impairment and amortisation expense increased by EUR 98.9 million mainly due to the consolidation of O3b and RR Media, as well as an impairment charge of EUR 38.4 million against AMC-9. Like-for-like depreciation and amortisation (excluding the impairment charge) was 8.4% lower than the prior period reflecting lower depreciation on the O3b fleet and a net reduction in the depreciation on the GEO fleet, which more than offset additional depreciation from new capacity added. Operating profit was 26.7% lower (-8.1% like-for-like) than the prior period, and the group's operating profit margin was 29.2% (H1 2016: 43.7% as reported and 31.3% like-for-like). Excluding the one-off impairment charge against AMC-9, like-for-like operating profit was 3.5% higher and the operating profit margin was 32.8%. PROFIT ATTRIBUTABLE TO SES SHAREHOLDERS
Net financing costs included a net foreign exchange gain of EUR 5.7 million (H1 2016: EUR 1.8 million). Net interest expense was broadly in line with the prior year, as additional finance costs from RR Media and O3b were offset by lower same scope net interest and higher capitalised interest. As presented using IFRS recognition principles, net financing costs exclude the interest payments for the EUR 1.3 billion of hybrid (perpetual) bonds issued during 2016 at an average coupon of 5.05%. The positive contribution from income tax of EUR 40.1 million resulted from the release of certain tax provisions and the recognition of a tax asset in relation to withholding tax in Latin America. Excluding these items, the group's effective tax rate was 13.1% (H1 2016: 17.4%). As a result of the consolidation of O3b on 1 August 2016, the group's share of associates' results (net of tax) was nil (H1 2016: loss of EUR 54.1 million). Net profit attributable to SES shareholders increased by 21.2% compared with the prior period. Earnings per share was EUR 0.56 for the first half of the year (H1 2016: EUR 0.55), which included the impact of the increase in the weighted average number of shares following the group's equity raising in May 2016 and is after deducting the net of tax coupon for the hybrid bonds. Cash Flow and Financing FREE CASH FLOW BEFORE FINANCING ACTIVITIES
Net cash generated by operating activities was EUR 68.3 million (or 12.1%) higher than the prior period. When combined with lower net cash absorbed by investing activities, free cash flow before financing increased by EUR 95.2 million (or 34.0%) compared with H1 2016. Free cash flow as a proportion of revenue was 35.8% (H1 2016: 29.3%). NET DEBT TO EBITDA RATIO
1) As presented using IFRS recognition principles, where hybrid bonds
are treated as 100% equity The group's current and non-current borrowings were EUR 110.9 million (or 2.5%) lower than the prior period. The lower cash and equivalents mainly reflect the timing of cash outflows for the acquisition of RR Media and the consolidation of O3b in H2 2016. The group's net debt to EBITDA ratio was 3.24 times as at 30 June 2017 (30 June 2016: 2.03 times), based on the treatment of SES's hybrid bonds as 50% debt and 50% equity. Financial Outlook The financial outlook aims to provide shareholders with an understanding of SES's growth trajectory, drivers and strategy execution in each of the market verticals, as well as the group's long-term value creation potential. The financial outlook assumes a nominal launch schedule and satellite health status. SES Video growth for FY 20171 is expected to be stable, in line with the previous outlook, before the combined impact of the later launches and changes in satellite health, as outlined on pages five and six. Including the temporary impact of these changes, SES Video is expected to decline slightly in FY 2017, returning to growth thereafter. The previous targets for the three SES Networks verticals are all re-affirmed. For FY 2017, SES is targeting a return to growth in Fixed Data, strong growth in Mobility and stable-to-slight growth in Government. SES's future revenue trajectory will benefit from the contribution of recently added and forthcoming GEO-MEO investments, planned to be launched by the end of 2019, which are expected to generate incremental annualised revenue of up to EUR 750 million (equivalent to around 35% of 2016 group revenue) at 'steady-state'. Over 30% of this revenue is already contracted. SES's EBITDA margin1 is expected to be broadly stable for FY 2017 and FY 2018 and rising slightly thereafter, while operating profit margin1 is expected to significantly improve to more than 40% in the medium term. SES's capital expenditure (CapEx) in FY 2017 is now expected to be around EUR 120 million lower (from EUR 810 million to EUR 690 million), due to changes in launch timing and lower uncommitted CapEx. These foundations will allow SES to significantly grow Return on Invested Capital (ROIC)2 to over 10% in the medium term. ________________________
1 On a like-for-like basis, assuming RR Media and O3b had
been consolidated on 1 January 2016. On this basis, Full Year 2016
EBITDA margin of 66.7% and Full Year 2016 Operating profit margin
(before gain on deemed disposal of equity interest) of 33.3% CONSOLIDATED INCOME STATEMENT FOR THE SIX MONTHS ENDED 30 JUNE
1) Earnings before interest, tax, depreciation, impairment,
amortisation and share of associates' result (net of tax) CONSOLIDATED STATEMENT OF FINANCIAL POSITION
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED 30 JUNE
1) Net of transaction costs Follow us on:
Twitter: https://twitter.com/SES_Satellites Presentation of Results: A presentation of the results for investors and analysts will be hosted at 12.00 CEST on 28 July 2017, and will be broadcast via webcast and conference call. The details for the conference call and webcast are as follows:
The presentation will be available for download from the Investors section of the SES website (www.ses.com), and a replay will be available for two weeks from the Investors section of the SES website. About SES SES is the world-leading satellite operator and the first to deliver a differentiated and scalable GEO-MEO offering worldwide, with more than 50 satellites in Geostationary Earth Orbit (GEO) and 12 in Medium Earth Orbit (MEO). SES focuses on value-added, end-to-end solutions in two key business units; SES Video and SES Networks. The company provides satellite communications services to broadcasters, content and internet service providers, mobile and fixed network operators, governments and institutions. SES's portfolio includes the ASTRA satellite system, which has the largest Direct-to-Home (DTH) television reach in Europe, O3b Networks, a global managed data communications service provider, and MX1, a leading media service provider that offers a full suite of innovative digital video and media services. Further information available at: www.ses.com Disclaimer This presentation does not, in any jurisdiction, and in particular not in the U.S., constitute or form part of, and should not be construed as, any offer for sale of, or solicitation of any offer to buy, or any investment advice in connection with, any securities of SES nor should it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. No representation or warranty, express or implied, is or will be made by SES, its directors, officers or advisors or any other person as to the accuracy, completeness or fairness of the information or opinions contained in this presentation, and any reliance you place on them will be at your sole risk. Without prejudice to the foregoing, none of SES or its directors, officers or advisors accept any liability whatsoever for any loss however arising, directly or indirectly, from use of this presentation or its contents or otherwise arising in connection therewith. This presentation includes "forward-looking statements". All statements other than statements of historical fact included in this presentation, including, without limitation, those regarding SES's financial position, business strategy, plans and objectives of management for future operations (including development plans and objectives relating to SES products and services) are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of SES to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding SES and its subsidiaries and affiliates, present and future business strategies and the environment in which SES will operate in the future and such assumptions may or may not prove to be correct. These forward-looking statements speak only as at the date of this presentation. Forward-looking statements contained in this presentation regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. SES and its directors, officers and advisors do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
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