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Eutelsat Communications: First Half 2020-21 ResultsRegulatory News: The Board of Directors of Eutelsat Communications (ISIN: FR0010221234 - Euronext Paris: ETL) (Paris:ETL), chaired by Dominique D'Hinnin, reviewed the financial results for the half-year ended 31 December 2020.
Commenting on the First Half, Rodolphe Belmer Chief Executive Officer of Eutelsat Communications, said: "Eutelsat has produced a solid First Half performance with Operating Verticals revenues down by 2%, reflecting our resilience in the Covid-19 impacted context, and with an EBITDA margin at 76.7%, despite the costs associated with Broadband ramp-up. Free-cash flow generation at the half year stage already amply covers the dividend paid in November. The past six months have been dynamic from a commercial point of view with the award of a further EGNOS payload to fly on EUTELSAT HOTBIRD 13G, a major wholesale agreement with Telecom Italia for the Italian capacity on EUTELSAT KONNECT and KONNECT VHTS following a similar agreement with Orange in France, and several renewal and new deals in Sub-Saharan African broadcast. From an operational point of view, we have made significant headway on our Broadband strategy with the entry into service of EUTELSAT KONNECT and the reorganization of our retail arm, where the integration of Bigblu Broadband is progressing smoothly. In view of this solid start to the year, we are in a position to absorb the negative perimeter effect linked to Broadband transactions and to raise the low end of our FY 21 revenue objective." Notes: This press release contains figures from the consolidated half-year accounts prepared under IFRS and subject to a limited review by the Auditors. They were reviewed by the Audit Committee on 10 February 2021 and approved by the Board of Directors on 11 February 2021. EBITDA, EBITDA margin, Net debt / EBITDA ratio, Cash Capex, Discretionary Free Cash-Flow and Adjusted Discretionary Free Cash-Flow are considered Alternative Performance Indicators. Their definition and calculation are in Appendix 3 of this document. KEY EVENTS
ANALYSIS OF REVENUES4
Total revenues in the First Half stood at €629 million, down 1.3% on a reported basis and by 1.6% like-for-like. Revenues of the five Operating Verticals (ie, excluding 'Other Revenues') stood at €613 million. They were down by 2.1% on a like-for-like basis excluding a positive perimeter effect of c.0.4 points (consolidation of Bigblu Broadband Europe since 1st October 2020) and a negative currency effect of c. -1.8 points. Second Quarter revenues stood at €313 million down 1.8% on a reported basis and by 2.4% like-for-like. Revenues of the five Operating Verticals stood at €306 million, down 2.4% year-on-year and by 0.2% quarter-on-quarter on a like-for-like basis. Unless otherwise stated, all variations indicated below are on a like-for-like basis, ie, at constant currency and perimeter. Broadcast (62% of revenues) First Half Broadcast revenues were down 1.8% to €379 million, reflecting predominantly the impact from 1st July of the renegotiation of contract terms with Greece's Forthnet. Second Quarter revenues stood at €188 million down by 2.1% year-on-year. On a sequential basis, they were down 0.9% and were stable excluding a positive one-off of circa €2m booked in the first quarter. At 31 December 2020, the total number of channels broadcast by Eutelsat satellites stood at 6,608, down 3.9% year-on-year. HD penetration continued to increase, standing at 1,767 channels versus 1,605 a year earlier (+10%), implying a penetration rate of 26.7% up from 23.3% a year earlier. On the commercial front, the African market remained dynamic with notably the expansion of the contract with Multichoice and the extension of the contract with ZAP, both operating at the 36°East orbital position. On the other hand, we continue to face a broad slowdown in the pace of new business against the current operating backdrop, notably in Europe, which will be reflected in the Second Half. As a reminder, in the first quarter a multi-year agreement was reached with Sky Italia, Eutelsat's largest broadcast customer for the renewal and consolidation of its capacity agreements at the HOTBIRD position, securing broadly stable revenues for Eutelsat in the medium term. Data & Professional Video (13% of revenues) First Half revenues stood at €81 million, down by 4.5% year-on-year. Fixed Data continued to reflect ongoing pricing pressure and highly competitive environment in particular in Latin America, although it is now partially offset by improving volumes reflecting notably the carry-forward effect of new business secured in MENA last year. Professional Video remained in decline on a year-on-year basis although Occasional Use, which was initially strongly impacted by the Covid-related lockdowns, confirmed its recovery in the past few months following the reinstatement of live sports events Second Quarter revenues stood at €42 million down 2.7% year-on-year but up by 7.2% quarter-on-quarter notably on the back of the rebound of Occasional Use. On the commercial front, a capacity contract with Liquid Telecom for the provision of VSAT services on the EUTELSAT 7B satellite was renewed and expanded. Government Services (13% of revenues) First Half Government Services revenues stood at €77 million, up by 2.5%, with the negative carry-forward impact of the US Government renewal campaigns of the past 18 months more than offset by the contribution of the EGNOS payload and by new business. Second Quarter revenues stood at €39 million, up by 4.5% year-on-year and by 2.1% quarter-on-quarter. As a reminder, Second Half revenues will reflect a tougher comparison basis, as the same period last year included the first-time contribution of EGNOS from mid-February as well as a positive one-off related to the temporary relocation of EUTELSAT 7A in the Fourth Quarter. On the commercial front, an agreement was signed with the European Global Navigation Satellite Systems Agency (GSA) for a further EGNOS payload to be carried by the EUTELSAT HOTBIRD 13G satellite for a total contract value of €100m over 15 years. Fixed Broadband (7% of revenues) First Half revenues stood at €42 million, up 2.3% reflecting notably higher sales of terminals in Europe in a context of increased demand for internet connectivity leading to a positive momentum of the European customer base in the last twelve months. Second Quarter revenues stood at €22 million. On a like-for-like basis, they were up 0.8% year-on-year, and down by 6.5% compared to the First Quarter which included a high level of terminals sales. In Europe, all the elements are now in place for a progressive return to growth: the KONNECT satellite gradually entered into service from mid-November and is now close to full-speed operations. The integration of Bigblu Broadband is progressing smoothly, and the first retail offers were launched in several countries. In parallel, two wholesale agreements have been inked with Orange and TIM, covering France and Italy respectively, and are starting to generate revenues from the current semester. In Africa, while revenues remain modest, progress has been made notably with a contract to provide connectivity services to the Post Office in Ivory Coast, highlighting the potential of government backed digital inclusion programs, and an agreement with the internet service provider, TelOne, covering Zimbabwe. Mobile Connectivity (5% of revenues) First Half revenues stood at 34 million, down 13.9% like-for-like, reflecting the impact of the Covid-19 crisis on Aero Mobility, leading to both a low level of airtime-related revenues on KA-SAT and to the renegotiation of contracts with certain service providers. On the other hand, maritime revenues remained well-oriented thanks to the ramp-up of contracts secured in the last couple of years. Second Quarter revenues stood at €16 million, down 20.1% year-on-year and by 6.9% quarter-on-quarter. As a reminder, the Second Quarter of FY 2019-20 included the catch-up of a negative one-off booked in the First Quarter for circa €1m. Other Revenues In the First Half, Other Revenues amounted to €15 million versus €1 million a year earlier. They included a €6 million positive impact from hedging operations versus a negative impact of (€5) million a year earlier. OPERATIONAL AND UTILIZED TRANSPONDERS The number of operational transponders at 31 December 2020 stood at 1,380, down by seven units year-on-year, mainly reflecting on one hand lower operational capacity at 5° West following the transfer of services from EUTELSAT 5 West A to EUTELSAT 5 West B in January 2020, and on the other, incremental capacity brought by EUTELSAT 7C in January 2020. Relative to end-June 2020 they were up by four units. The number of utilized transponders stood at 967, almost unchanged year-on-year and up by seven units compared to end June. As a result, the fill rate progressed to 70.1% compared to 69.7% a year earlier and at end-June.
Note: Based on 36 MHz-equivalent transponders excluding high throughput capacity and satellites in inclined orbit. ORDER BACKLOG The order backlog9 stood at €4.4 billion at 31 December 2020 versus 4.3 billion a year earlier and 4.1 billion at end June 2020. It now includes the capacity commitments secured with TIM on EUTELSAT KONNECT and KONNECT VHTS but not yet the recent contract for the additional EGNOS payload. The backlog was equivalent to 3.4 times 2019-20 revenues, and Broadcast represented 67% of the total.
PROFITABILITY EBITDA stood at €482 million at 31 December 2020 compared with €496 million a year earlier, down by 2.7%. The EBITDA margin stood at 76.7% (76.7% at constant currency) versus 77.8% a year earlier, reflecting lower revenues and higher costs to prepare the change in scale in Fixed Broadband including the slightly dilutive impact from the consolidation of Bigblu Broadband Europe. These effects were partially offset by a strong cost discipline on the Core business. The LEAP 2 cost-saving program is well on track to deliver its objective of €20-25 million in annual savings by 2021-22 with around half of this amount to be delivered by the end of the current fiscal year. Group share of net income stood at €137 million versus €141 million a year earlier, down by 2.3% and representing a margin of 22%. This reflected:
CASH FLOW In H1 2020-21, net cash flow from operating activities amounted to €435 million, €82 million higher than a year earlier. It reflected notably lower tax paid as well as a favourable comparison basis for change in working capital, since June 2020 reflected the most acute stage of the Covid-19 crisis. Cash Capex amounted to €117 million (versus €189 million last year); this level reflects the phasing of satellite program milestones and is not representative of the expected Full Year figure. Interest and other fees paid net of interest received amounted to €61 million versus €57 million last year, the slight increase reflecting a phasing effect. As a reminder the bulk of the coupon payments related to our Bonds fall due in the First Half (three maturities representing a nominal amount of €1.7bn) with only one maturity in the Second Half (€500m nominal amount). Discretionary Free Cash-Flow amounted to €257 million on a reported basis, up €149 million. Adjusted Discretionary Free Cash-Flow as per the financial outlook definition10 stood at €275 million, up €158 million or 134%. FINANCIAL STRUCTURE
In the First Half, the Group raised €800 million of financing highlighting its ease of access to diversified sources of funding and leading to the extension of the average debt maturity on compelling terms. A €600 million Eurobond was issued in October with an 8-year maturity and a 1.5% coupon to refinance the June 2021 €500 million maturity. Elsewhere, an agreement was secured with the European Investment Bank for a €200 million 8-year term loan to finance the KONNECT VHTS program at an interest rate of 0.49%. The Group's strong liquidity position enabled it to make an early repayment of €200 million out of the €600 million term loan maturing in March 2022.
The net debt to EBITDA ratio stood at 3.09 times, compared to 3.20 times at end-December 2019 and 3.05 times at end-June 2020. The average cost of debt after hedging stood at 2.3% (2.4% in H1 2019-20). The weighted average maturity of the Group's debt stood at 4.3 years, or 4.9 years excluding the Bond maturing in June 2021, which is already refinanced, compared to 4.2 years at end-December 2019. Liquidity remained strong, with undrawn credit lines and cash in excess of €1.7 billion. DIVIDEND The Annual General Meeting of Shareholders of 5 November 2020 approved the payment of a dividend of €0.89 per share in respect of the financial year ended 30 June 2020. The dividend was paid on November 24, 2020. CHANGES IN PERIMETER On 1 October 2020, the transaction with Bigblu Broadband for the acquisition of its European satellite broadband activities was closed for a consideration of approximately £38 million. On 18 November 2020, an agreement was signed with Viasat Inc. for the disposal of Eutelsat's 51% stake in Euro Broadband Infrastructure (EBI), the company operating the KA SAT satellite and related European broadband business, for an initial consideration of €140 million. Completion is expected by the end of the current quarter, subject to customary conditions precedent. The net impact of the combined operations is estimated at around (€20) million on Operating Vertical Revenues and (€30) million on Discretionary Free Cash-Flow for the first full fiscal year following completion of the transactions. As stated above, our Full Year 2020-21 revenues target is raised, despite the net negative perimeter effect linked to these transactions which will affect the second half, while the FY 2021-22 Adjusted Discretionary Free Cash-Flow objective is mechanically adjusted. FINANCIAL OUTLOOK On the back of our robust First Half revenue performance, we are in a position to raise the low end of our FY 2020-21 objective of revenues for the five Operating Verticals to between €1,190 million and €1,220 million12 (versus between €1,180 million to €1,220 million previously). We are also absorbing the negative effect of changes in perimeter expected in the second half. As highlighted by the First Half performance, we remain well on track on our Cash-Flow generation trajectory. The Adjusted Discretionary Free Cash-Flow objective for FY 2021-22, which was based on a constant perimeter assumption, is mechanically adjusted from the (€30) million net impact of the combined operations of the acquisition of Bigblu Broadband Europe and the disposal of EBI and now stands between €390 million and €420 million13 in FY 2021-22 (€420 million to €450 million previously). All other elements of the financial outlook are confirmed:
This outlook is based on the nominal deployment plan outlined hereunder. FLEET DEPLOYMENT Nominal deployment programme The Covid-19 crisis continued to affect the operations of satellite manufacturers and launchers. In this context, since the last quarterly update in October 2020:
Changes in the fleet since 30 June 2020
CORPORATE GOVERNANCE Annual General Meeting The Ordinary and Extraordinary Shareholders' Meeting of 5 November 2020 renewed the mandates of Rodolphe Belmer and Fonds Stratégique de Participations. The Board is composed of 10 members, 50% of whom are women and 70% of whom are independent. The Combined General Meeting also approved all the other resolutions, including the accounts, the dividend in respect of FY 2019-20, compensation of corporate officers and compensation policy. Appointment of Pascal Homsy as Chief Technical Officer Pascal Homsy joined Eutelsat as Chief Technical Officer and as a member of the Executive Committee. He replaces Yohann Leroy. Appointment of Anne Carron as Chief Human Resources Officer Anne Carron joined Eutelsat in the role of Chief Human Resources Officer and as a member of the Executive Committee. She replaces Marie-Sophie Rouzaud. ******* Results presentation Eutelsat Communications will present its results on Friday, February 12th, 2021 by conference call and webcast at 9:00 CET. To join the call, please dial the following numbers:
Access code: 1505199# A live webcast will be available here. A replay will be available from 12 February, 13:00 CET to 19 February, 13:00 CET by dialling the following numbers:
Access code: 1505199#
Documentation
Financial calendar
About Eutelsat Communications
Disclaimer The forward-looking statements included herein are for illustrative purposes only and are based on management's views and assumptions as of the date of this document. Such forward-looking statements involve known and unknown risks. For illustrative purposes only, such risks include but are not limited to: risks related to the health crisis; operational risks related to satellite failures or impaired satellite performance, or failure to roll out the deployment plan as planned and within the expected timeframe; risks related to the trend in the satellite telecommunications market resulting from increased competition or technological changes affecting the market; risks related to the international dimension of the Group's customers and activities; risks related to the adoption of international rules on frequency coordination and financial risks related, inter alia, to the financial guarantee granted to the Intergovernmental Organization's closed pension fund, and foreign exchange risk. Eutelsat Communications expressly disclaims any obligation or undertaking to update or revise any projections, forecasts or estimates contained in this document to reflect any change in events, conditions, assumptions or circumstances on which any such statements are based, unless so required by applicable law. The information contained in this document is not based on historical fact and should not be construed as a guarantee that the facts or data mentioned will occur. This information is based on data, assumptions and estimates that the Group considers as reasonable. APPENDICES Appendix 1: Additional financial data Extract from the consolidated income statement (€ millions)
Change in net debt (€ millions)
Appendix 2: Quarterly revenues by application
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 frequently used indicator in the Fixed Satellite Services Sector and more generally the Telecom industry. The table below shows the calculation of EBITDA based on the consolidated P&L accounts for H1 2019-20 and H1 2020-21:
The EBITDA margin is the ratio of EBITDA to revenues. It is calculated as follows:
At constant currency, the EBITDA margin stood at 76.7% as of 31 December 2020. The Net debt / EBITDA ratio is the ratio of net debt to last-twelve months EBITDA. It is calculated as follows:
Cash Capex
The table below shows the calculation of Cash Capex for H1 2019-20 and H1 2020-21:
Discretionary Free Cash-Flow (DFCF)
1 Please refer to Appendix 3 for definition and calculation.
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