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Eutelsat Communications: Fourth Quarter and Full Year 2017-18 ResultsRegulatory News: The Board of Directors of Eutelsat Communications (Paris:ETL) (ISIN: FR0010221234 - Euronext Paris: ETL) met yesterday, chaired by Dominique D'Hinnin, and reviewed the financial results for the year ended 30 June 2018.
Rodolphe Belmer, CEO of Eutelsat Communications, said: "I'm pleased to report that we fully delivered on all of our financial objectives for the second year in a row. In particular, I would highlight the progressive improvement throughout the year for the five operating verticals. Moreover, in terms of financial discipline, we are ahead of plan on the LEAP cost savings program. Elsewhere, the successful application of our design-to-cost policy - clearly illustrated in the renewal of the HOTBIRD constellation - will enable us once again to reduce our capex envelope in the coming years, while the disposal of our stake in Hispasat enhanced our deleveraging efforts. On the operational front we took an important step in terms of shaping our Connectivity strategy with the procurement of our KONNECT VHTS satellite. During this year, we also delivered a solid commercial performance which sets us in good stead to achieve our objective of returning to slight revenue growth this year. All our other financial targets are also confirmed, and we are recommending a dividend increase of 5% to 1.27 per share, underpinned by substantial discretionary free cash-flow growth, and as a mark of our confidence in the future of our company."
HIGHLIGHTS OF THE YEAR Fully delivering on all financial objectives:
Progressive improvement in trend in the operating verticals
Effective design-to-cost policy underpinning tangible reduction in Capex spend
Robust commercial performance underpinning return to slight growth in FY 2018-19
Procurement of KONNECT VHTS to shape our Connectivity strategy
REVENUES4 Revenues for FY 2017-18 stood at €1,407.9 million, down 1.9% like-for-like. On a reported basis, they were down 4.7%, reflecting a negative currency effect of 3.2 points and a positive perimeter effect of 0.4 points (impact of the acquisition of Noorsat partly offset by the disposal of Wins/DHI and DSAT Cinema). Overall revenues for the five operating verticals (ie excluding 'Other Revenues') were down 1.3% at constant currency and perimeter. Revenues for the Fourth Quarter stood at €373.9 million. Year-on-year they were up 4.3% on a reported basis, and up by 7.6% on a like-for-like basis. Revenues of the five operating verticals were down by 0.7% at constant currency and perimeter, a trend which with has progressively improved throughout the year (-2.2% year-on-year in the second quarter, -1.1% year on year in the third quarter). Quarter-on-quarter, revenues increased by 10.8% on a reported basis and by 11.0% on a like-for-like basis. Revenues of the five operating verticals were up by 0.3% at constant currency and perimeter (-0.4% in the second quarter versus the first quarter, -0.3% in the third quarter versus the second quarter). Unless otherwise stated, all variations indicated below are on a like-for-like basis (at constant currency and perimeter). Revenues by application
Core businesses Video Applications (66% of revenues) In FY 2017-18, Video Applications revenues were down 0.7% like-for-like to €897.3 million. Revenues from Broadcast were slightly up excluding the impact of the end of the TV d'Orange contract at the HOTBIRD position, with a solid performance in key emerging markets, notably MENA at the 7/8° West orbital position and Russia at the 36°East and 56°East orbital positions. Professional Video continued to decline reflecting ongoing pressure on point-to-point services. Fourth Quarter revenues stood at €223.1 million, broadly flat year-on-year and down 0.8% quarter-on-quarter. At 30 June 2018 the total number of channels broadcast by Eutelsat satellites stood at 6,929 (+299 year-on-year). High Definition penetration continued to increase, representing 21.0% of channels compared to 17.2% a year earlier, for a total of 1,455 channels, versus 1,142 a year earlier (+313). Government Services (12% of revenues) In FY 2017-18 Government Services revenues were stable like-for-like to €158.9 million reflecting predominantly the level of the previous two renewal campaigns with the US Department of Defense. Fourth Quarter revenues amounted to €40.2 million, up 2.3% year-on-year. The negative base effect of a positive one-off in the Fourth Quarter of the previous year was more than offset by the first effects of the ramp-up of incremental business secured at the 174°East orbital position. On a quarter-on-quarter basis, revenues were up 5.8%. Commercial activity was favourable throughout the year with a high level of renewals with the US Department of Defense both in Fall 2017 (c.95%) and Spring 2018 (above 95%) as well as the commercialization of the vast majority of the operational transponders at the 174°East position, thereby paving the way for an improvement in trend for this application in FY 2018-19. Fixed Data (10% of revenues) In FY 2017-18, Fixed Data revenues were down 10.1% like-for-like to €142.5 million. They continued to reflect ongoing pricing pressure in all geographies and the absence of significant incremental volumes. Fourth Quarter revenues stood at €34.2 million, down by 10.6% on a year-on-year basis. On a quarter-on quarter basis they were down 1.9%. Eutelsat's cautious view on this vertical is unchanged and revenues are expected to continue to decline in FY 2018-19. Connectivity Fixed Broadband (6% of revenues) In FY 2017-18 Fixed Broadband revenues stood at €86.7 million, down 7.8% year-on-year. Fourth Quarter revenues stood at €21.1 million, down by 7.5% on a year-on-year basis and by 1.9% quarter-on-quarter. This performance reflected lower revenues for European Broadband in a context of scarcity of available capacity in Western Europe and slower than hoped-for progress by the retail joint-venture with ViaSat. The launch of the commercial service in Africa on the Al-Yah-3 satellite in August and actions in Europe including yield management, differentiated offers and a strengthened focus on under-penetrated verticals should lead to a return to growth in FY 2018-19. Mobile Connectivity (6% of revenues) In FY 2017-18 Mobile Connectivity revenues stood at €74.4 million, up 18.2% year-on-year, reflecting the effect of the Taqnia contract signed last year, the contribution of of EUTELSAT 172B - with capacity pre-sold to Panasonic - which entered service at end-November 2017, as well as continued growth on wide-beam capacity notably over the Americas. Fourth Quarter revenues stood at €19.5 million, up 14.6% year-on-year and by 9.0% quarter-on-quarter. Revenues in FY 2018-19 will benefit from start of the UnicomAirNet contract on EUTELSAT 172B in January 2019, the contribution of the new contract with Taqnia at several orbital positions, as well as the ongoing ramp up of capacity contracts on KA-SAT for the benefit of several European airlines. Other revenues In FY 2017-18, 'Other Revenues' amounted to €48.1 million compared with €55.0 million a year earlier. They included notably fees in respect of a small number of material technical and engineering contracts which materialized in the fourth quarter. OPERATIONAL AND UTILIZED TRANSPONDERS The number of operational 36 MHz-equivalent transponders stood at 1,427 at 30 June 2018, up 55 over 12 months, mainly reflecting the entry into service of EUTELSAT 172B end-November 2017 and subsequent relocation of EUTELSAT 172A at 174°East. The number of transponder utilized is up by 40 units year-on-year. As a result the fill rate stood at 68.1% compared to 67.9% a year ago.
Note: Based on 36 MHz-equivalent transponders excluding high throughput capacity BACKLOG Note: The backlog represents future revenues from capacity lease agreements and can include contracts for satellites under procurement. At 30 June 2018, it stood at €4.6 billion, down 12% compared to 30 June 2017, reflecting mainly the impact of the integration of Noorsat (-€0.4 billion). Contracts added to the backlog during the year included notably renewals with Cyfrowy Polsat and TVN at HOTBIRD, the new contract with UnicomAirNet at 172°East as well as the new contract with Taqnia at several orbital slots. The backlog was equivalent to 3.2 times 2017-18 revenues with 83% represented by Video.
PROFITABILITY EBITDA stood at €1,076.9 million (€1,133.6 million at 30 June 2017), down 5.0%. The "LEAP" cost savings plan is ahead of track, generating €24m of savings versus an objective of €15 million in FY 2017-18. As a result, despite lower 'Other' revenues with lower associated costs and the slightly dilutive impact of the integration of Noorsat, the EBITDA margin stood at 76.9% at constant rate (76.5% on a reported basis), compared to 76.7% last year. Group share of net income stood at €290.1 million versus €351.8 million in 2016-17 a decrease of 17.5%. The net margin stood at 21%. This reflected mainly:
DISCRETIONARY FREE-CASH-FLOW Net cash flow from operating activities stood at €880.8 million compared to €982.9 million in 2016-17, down €102.1 million. This reflected mostly the decrease in EBITDA, slightly higher tax paid, relating to the timing of tax payments, as well as an unfavorable evolution in working capital compared to a demanding comparison base last year. Cash Capex9 amounted to €358.2 million compared to €414.4 million a year earlier, below the target of €420 million per annum on average over three years, reflecting the phasing of various satellite programmes as well as effective Capex containment. It included initial payments in respect of the KONNECT VHTS satellites and the HOTBIRD constellation replacement. Interest and other fees paid net of interest received stood at €107.9 million (€160.7 million in 2016-17); the €52.8 million decrease reflected mainly the repayment of the €850 million bond in March 2017. As a result, Discretionary Free-Cash-Flow10 stood at €414.7 million at 30 June 2018, up by €6.9 million (or 1.7%) year-on-year. At constant currency it was up by 11.9%. FINANCIAL STRUCTURE At 30 June 2018 net debt stood at €3,241.6 million versus €3,640.7 million a year earlier, a €399.1 million reduction. Discretionary free cash-flow more than covered the dividend payment (€295.4 million including dividends paid to minority interests). Equity divestments / investments (disposal of the stake in Hispasat and acquisition of Noorsat and minority interest in Broadband for Africa) generated a net cash inflow of €206.2 million, while the foreign exchange portion of the cross-currency swap - included in Net Debt - decreased by €16.1 million. Lower amount of export credit financing and financial leases contributed to the reduction in net debt for €57.4 million. As a result, the net debt to EBITDA ratio stood at 3.0 times, a 0.2 point improvement on 30 June 2017. At 30 June 2018 the weighted average maturity of the Group's debt stood at 2.2 years, compared to 3.0 years at 30 June 2017. The average cost of debt was 2.9% (after hedging), down from 3.1% in FY 2016-17. Liquidity remains strong, with undrawn credit lines of €650 million and cash of €734 million. DIVIDEND On 31 July 2018 the Board of Directors agreed to recommend to Annual Meeting of Shareholders on 8 November 2018 a dividend of €1.27 per share compared to €1.21 last year (+5%), in line with the Group's commitment to serving a stable to progressive dividend. The dividend will be paid on 22 November 2018, subject to the vote of the Annual Meeting of Shareholders. IMPACT OF ADOPTION OF IFRS 15 AND IFRS 16 IFRS 15 and IFRS 16 will be adopted in the Group's consolidated financial statements for the financial year beginning 1 July 2018. The main impacts of IFRS 15 are related to the timing of revenue and cost recognition or reclassifications between revenues and costs for items such as marketing and technical contributions and for subscriber acquisition costs and terminals in the Fixed Broadband application. The adoption of IFRS 16 will lead to the capitalization of short-term operating leases which were previously accounted as opex. The Group will apply IFRS 15 retrospectively by restating the comparable period. IFRS 16 will be applied under the simplified retrospective method with no restatement of comparative periods.
Overall, the broad impact of IFRS 15 is estimated between -€15 and -€20
million on 2017-18 revenues (of which -€15 to -€20 million on Operating
Verticals). IFRS 16 has no impact on revenues. OUTLOOK Note: The less predictable nature 'Other Revenues' (ie revenues which are non-recurring and not related to the commercialization of capacity) leads us to exclude them from our revenue objectives as of FY 2018-19. All elements of the financial outlook are confirmed or upgraded.
This outlook is based on the nominal deployment plan outlined hereunder. FLEET DEVELOPMENTS Nominal launch programme The upcoming launch schedule is indicated below. Since the last quarterly update in May 2018, the launches of EUTELSAT 7C and EUTELSAT 5 WEST B have been postponed to Q1 2019 (versus Q4 2018 previously)
Procurement of KONNECT VHTS Eutelsat ordered the KONNECT VHTS satellite from Thales Alenia Space. Expected to be launched in 2021, it will bring 500 Gbps of Ka-Band capacity over Europe to support the development of European Fixed Broadband and in-flight Connectivity businesses. Significant firm multi-year distribution commitments have been signed with Orange to address the Fixed Broadband market in European countries where the Group has a retail presence and Thales to serve notably the government market. Procurement of HOTBIRD Constellation replacement Eutelsat has signed a Memorandum of Agreement (MoA) for the procurement of two larger new satellites from Airbus Defence and Space to replace the three existing satellites at its HOTBIRD flagship neighbourhood. These two new satellites are set to be launched in 2021. Changes in the fleet
CORPORATE GOVERNANCE The Board of 31 July 2018 proposed, amongst others, the following resolutions to be submitted to the vote of shareholders present at the Annual General Meeting of 8 November 2018:
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Documentation
Results presentation To join the call, please dial the following numbers:
Access code: 8635831#
A live webcast will be available on: A replay will be available from August 1st, 13:00 CET to August 8, midnight by dialling the following numbers: + 33 (0) 1 70 48 00 94 (from France)
Access code: 8635831# Financial calendar Note: The financial calendar is provided for information purposes only. It is subject to change and will be regularly updated.
About Eutelsat Communications Founded in 1977, Eutelsat Communications is one of the world's leading satellite operators. With a global fleet of satellites and associated ground infrastructure, Eutelsat enables clients across Video, Data, Government, Fixed and Mobile Broadband markets to communicate effectively to their customers, irrespective of their location. Over 6,800 television channels operated by leading media groups are broadcast by Eutelsat to one billion viewers equipped for DTH reception or connected to terrestrial networks. Headquartered in Paris, with offices and teleports around the globe, Eutelsat assembles 1,000 men and women from 46 countries who are dedicated to delivering the highest quality of service. Eutelsat Communications is listed on the Euronext Paris Stock Exchange (ticker: ETL). For more about Eutelsat go to 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. APPENDICES Appendix 1: Additional financial data Revenues by business application in the Fourth Quarter (€ millions)
Extract from the consolidated income statement (€ millions)
Change in net debt (€ millions)
Appendix 2: Quarterly revenues by application Reported revenues The table below shows quarterly reported revenues. Q1 2016-17 revenues are restated under the new classifications used since H1 2016-17 results.
Proforma revenues The table below shows quarterly proforma revenues for FY 2016-17 excluding revenues from Wins / DHI and DSAT Cinema.
Appendix 3: Alternative performance indicators In addition to the data published in its accounts, the Group communicates on three alternative performance indicators which it deems relevant for measuring its financial performance: EBITDA, cash capex and Discretionary free cash flow (DFCF). These indicators are the object of reconciliation with the consolidated accounts. EBITDA, EBITDA margin and Net debt / EBITDA ratio EBITDA reflects the profitability of the Group before Interest, Tax, Depreciation and Amortization. It is a key indicator in the Fixed Satellite Services Sector. The table below shows the calculation of EBITDA based on the consolidated P&L accounts for FY 2016-17 and FY 2017-18:
The EBITDA margin is the ratio of EBITDA to revenues. It is computed as follows:
At constant currency, the EBITDA margin would have stood at 76.9% as of 30 June 2018. The Net debt / EBITDA ratio is the ratio of net debt to last-twelve months EBITDA. It is computed as follows:
Cash Capex The Group on occasion operates capacity within the framework of financial leases, or finances all or part of certain satellite programs under export credit agreements, leading to outflows which are not reflected in the item "acquisition of satellites and other tangible or intangible assets". Cash Capex including these two elements is published in order to reflect the totality of Capital Expenditures undertaken in any financial year. Cash Capex therefore covers the acquisition of satellites and other tangible or intangible assets as well as payments in respect of export credit facilities and long term financial leases on third party capacity. Cash Capex for FY 2016-17 was restated from the value of the payment owed in 2015-16 to RSCC in respect of lease of EUTELSAT 36C but paid effectively in FY 2016-1721 (€95.2m) which was already accounted for in 2015-16 cash capex. The table below shows the calculation of Cash Capex for FY 2016-17 and FY 2017-18:
Discretionary free cash flow (DFCF) The Group communicates on Discretionary free cash flow which reflects its ability to generate cash after the payment of interest and taxes. DFCF generally and principally serves the dividend payment and debt reduction. Discretionary free cash flow is defined as Net cash flow from operating activities less Cash Capex as well as interest and other financial costs, net of interest income. The table below shows the calculation of Discretionary free cash flow for FY 2016-17 and FY 2017-18 and its reconciliation with the cash flow statement:
At constant currency, the Discretionary Free-Cash Flow would have amounted to €456.2 million as of 30 June 2018. Appendix 4: restatement of comparative financial statements Total shareholder's equity stood at €2,844 million at 30 June 2018 versus €2,911 million at 30 June 2017.
FY 2016-17 opening shareholder equity has been restated to adjust the
Satelites Mexicanos' deferred tax positions, leading to a negative net
impact of 56.3 million euros (ie circa 2% of total shareholder equity),
with no impact on the income statement as of 30 June 2017.
1 At constant currency and perimeter
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