Eutelsat Communications SA

PAR:ETL

Earnings Call Transcript 2020-Q1

[Operator]

Good day, and welcome to the Eutelsat Q1 2019-20 Revenue Conference Call. Today's conference is being recorded. At this time I would like to turn the conference over to Sandrine Téran, CFO and Michel Azibert, Deputy CEO. Please go ahead.

[Sandrine Téran, CFO & IT Officer]

Thank you, good evening, and thank you for joining us on this call where we will present our first quarter 2019-20 revenues. I am Sandrine Téran, CFO and I am joined by Michel Azibert, Deputy CEO. Before looking in detail at the numbers, let's take a look at key events since we last spoke to you in July. On the commercial front, in the government [indiscernible], we had a much better outcome than in the recent [indiscernible] with the renewal rate of 90% in value. Elsewhere, the 'LEAP 2' cost savings program announced in July, has been launched. It consists of group-wise headcount and remuneration measures as well as a simplification of the organizational structure. The EUR 20 million to EUR 25 million OpEx savings target is confirmed. The purpose of these savings is to create headwinds to reinvest in our connectivity businesses while preserving the EBITDA margin. In terms of our connectivity strategy, we have recently procured the all electrical EUTELSAT 10B satellite, which includes replacement and gross capacity with significant firm precommitment from mobile connectivity, and make progress on our IoT strategy notably with the unveiling of our ELO nanosatellite constellation project and the launch of the IoT FIRST. On the next positive note, as you are aware, we are investigating an incident on the recently launched EUTELSAT 5 West B satellite to determine what impact, if any, it will have on its mission. Finally, the 6.2% decline in operating verticals revenue is slightly behind where we would like to be at this stage of the year but is not reflective of full year trends, which are set to benefit from an easy-in-comparison base, incremental capacity and new business in the pipeline. Hence, we confirm all our financial objectives, which as you know are based on a nominal deployment plan i.e. prior to any impact of the potential modification of the EUTELSAT 5 West B mission. Let's take a look at the Q1 performance by application. As a reminder, all commentary on figures relates to like-for-like basis i.e. at constant currency and perimeter. Please also note, that as of this quarter, broadcast is reported on a stand-alone basis while Professional Video and Fixed Data are regrouped under Data and Professional Video. Total first quarter revenues stood at EUR 318 million versus EUR 335 million a year earlier, down 5.2% on a reported basis. They reflected a negative perimeter impact of EUR 2 million, linked to the disposal of EUTELSAT 25B in August 2019. The positive currency effect of EUR 5 million and stable Other revenues. As a result, the revenues of the operating verticals were down by 6.2% like for like. Let's have a look at each application. Broadcast 62% of total revenues, recorded Q1 revenues of EUR 195 million, down 1.7% versus last year. Data and Professional Video now 14% of group total revenues, saw revenues of EUR 43 million down 19.6%. Government Services 12% of revenues generated revenues of EUR 39 million, down 10.7%. Turning to Connectivity, Fixed Broadband, 6% of revenues stood at EUR 20 million, a decline of 3.3% year-on-year. Mobility, 6% of revenues, saw revenues of EUR 20 million down 7.8%. Finally, other revenues stood at EUR 1 million, that included a negative hedging impact of minus EUR 2 million. Let's look at each vertical in more detail. First Broadcast. The 1.7% decline in revenues reflected notably, the termination of the contracted Sub-Saharan Africa and the temporary effect of the return of a couple of transponders in Russia, which are expected to be resold later this fiscal year. None of these elements alter our view of Broadcast as a resilience business. On the commercial front, two multi-year multi-transponder contracts were signed with Orby TV for capacity on EUTELSAT 117 West A for the launch of a new DTH service across the United States and Ultra DTH for capacity on EUTELSAT 65 West A to support the deployment of white level platform across the Caribbean and Indian regions. Although additional revenues will be limited, these contracts show that there are still opportunities for UDTH platforms both in emerging and mature markets. Elsewhere, broadcast revenues are expected to benefit from the entry into service of EUTELSAT 7C at the end of calendar 2019 bringing incremental capacity to the African broadcast market. The number of channels broadcast stood at 6,976 at the end of September, reflecting the termination of the contract in Sub-Saharan Africa with an impact of circa 100 channels and the end of the dual illumination for 80 channels. Excluding these two items, the number of channels is up by 152 units or plus 2.3%. The number of MPEG-4 channels rose by 2% to 4,815. That growth continues to lag the ramp in HD channels up 11% to 1,582. MPEG-4 nevertheless remains considerably more advanced than high definition with the penetration rate accrued the fleet of 69%. This is 23% for HD channels. As a result, the consumption of megabit per second was up 3% year-on-year. First quarter revenues for data and professional video stood at EUR 43 million, down 19.6% year-on-year. They continue to reflect, the ongoing pricing pressure and highly competitive environment in this application. On top of that, this quarter was marked by new volume losses in fixed data and by lower occasional use in professional video. The comparison basis is set to ease in the second half of the fiscal year. Government services revenues stood at EUR 39 million down 10.7% year-on-year. This reflects the carryforward effect of the US Department of Defense renewal campaign in fiscal year '19 and notably the nonrenewal of the sizeable contract with the service provider in the first quarter of last fiscal year. The latest round of contract renewals with the U.S. government in fall 2019 has been much more positive with the rate of circa 90% in value at this stage. Looking ahead, trends will benefit from an even comparison base from the second quarter onwards and from the start of the EGNOS contract in the second half, subject of course to the availability of the payload and EUTELSAT 5 West B. As a reminder, this payload is expected to generate EUR 102 million of revenue over 15 years. Fixed Broadband revenues were down 3.3% year-on-year at EUR 20 million. Revenue trends continue to improve in Europe with the sequential stabilization reflecting the continued progress of the PPP program, which is gradually being extended to new countries. For example, Spain, which has been launched recently is showing promising results. As expected, the contribution of African broadband remains modest at this stage, but is expected to ramp up throughout the year. Turning to Mobile Connectivity. First quarter revenues were down 7.8% year-on-year. They reflected mostly a negative one-of of circa EUR 1 million related to the timing of revenue recognition, which will be cut up next quarter. Other effects include notably the carryforward impact of the end of a temporary wide-beam contract on EUTELSAT 172B in fiscal year '19, which offsets the contribution of UnicomAirNet from January 2019. The year as a whole is set to benefit from ramp-up in Maritime as well as from the materialization of opportunities in the pipeline. Looking further out, the precommitment on the recently procured EUTELSAT 10B reflects robust demand in mobile connectivity. Turning to fill rate and backlog, the backlog stood at EUR 4.2 billion at 8 September, 2019, this is EUR 4.7 billion a year earlier and EUR 4.4 billion at end June 2019. It does not yet include the multi-year capacity commitment of EUTELSAT 10B. The backlog was equivalent to 3.2x 2018, 2019 revenues with Video representing 75%. The number of operational transponders stood at 12,387, at 30 September, 2019, down by 29 units year-on-year mainly reflecting the end of life in stable orbit of EUTELSAT 12 West B. They are unchanged, that is end June 2019. The number of utilized transponders was up by 6 units quarter-on-quarter. As a result, the fill rate stood at 69.7% at 8 September, 2019, versus 69.2% at end June. Let's turn now to the outlook. As a reminder, our strategic roadmap relies on 2 pillars: first, maximizing cash generation, leveraging all component of free cash flow; and second, building the foundation of a return to growth by extracting value from the Broadcast business and capturing the connectivity opportunity. As flagged earlier, we have made progress on both of these pillars during the quarter. Continuing to leverage all aspects of cash generation, we are rolling out our 'LEAP 2' cost savings program, which will mainly address staff costs. We confirm our objective of generating economies of EUR 20 million to EUR 25 million by the end of fiscal year '22 to support our deployment into future growth verticals, namely connectivity, while at the same time, preserving our EBITDA margin. The plan will enroll multiple measures including the reduction of circa 100 in headcount outside of France, a global hiring freeze in the legacy businesses and austerity measures within France, including a compensation freeze over 3 years. This project will be presented to relevant staff representative bodies. On the second pillar, return to growth, we have made progress on the implementation of our connectivity strategy. First, with the procurement of EUTELSAT 10B, which marks the new step towards capturing the mobility opportunity. With the launch scheduled in 2022, the satellites will be located at 10 degrees east, the strategic position providing unrivaled coverage of Europe and MENA. This region is experiencing growing demand for mobility both Aero and Maritime and shows a shortage of Ku-Band supply. To this end, while providing continuity for customers on EUTELSAT 10A, the new satellite also brings 2 new incremental HTS payloads in Ku-Band providing an optimal mix of throughput and coverage and providing a capacity of circa 35 gigabits per second. We have been securing firm multi-year capacity commitments for in-flight connectivity, notably with Google representing more than a third of this capacity significantly de-risking the investment. There is also interest from other potential customers. Turning to IoT, we will test market traction towards the self-growth levers of connectivity strategy in addition to mobility and Fixed Broadband. The IOT market represents a significant opportunity. Within the next 10 years, tens of millions of objects in sectors as diverse as transport, oil and gas and agriculture will need to send information from areas unserved by terrestrial infrastructure. Satellite is the ideal complement to provide ubiquitous coverage for these objects. Foundations that have been laid to see this opportunity with two complementary initiatives. First are ELO constellation of nanosatellites we provide as soon as 2022, the global coverage, low latency at full speed with less than an hour to receive messages and a compelling commercial offer at just a few dollars per unit for the chipsets and the single-digit price per object per annum. Moreover, we have entered into a strategic partnership with SIGFOX, one of the current market leaders in IoT delivery solutions with the aim of enabling seamless integration between terrestrial and satellite networks. The investment comes with an effective risk/return profile. The project is fully scalable to reach 25 satellites by 2022. Subject to the outcome of technical and commercial tests. The satellite themselves cost less than EUR 1 million per unit and at full speed, the constellation will require mid-single-digit EUR 1 million OpEx per annum. At the same time, we are leveraging our existing geostationary fleet to develop IoT services, both through backhauling or for direct connectivity to objects. To this end, we have recently launched IoT FIRST an end-to-end managed service using our existing K-band resources and teleports to address a complementary subsegment of the IoT market. Let's turn now to the outlook for the rest of the year. As stated earlier, the outcome of the first quarter is slightly below our expectations notably due to a worse than expected performance in Data and Professional Video, and in Broadcast the unexpected return of a couple of transponders in Russia. However, revenues in the coming quarters tend to benefit from an even comparison basis in particular in Government Services and Data and Professional Video. As the chart on the left shows, the average quarterly revenue daily for the next three quarters is almost 3% below the level of the first. And several important tailwinds notably the entering into service of EUTELSAT 7C in December with incremental capacity in Sub-Saharan Africa, the ramp-up of Fixed Broadband in Africa, new business in the pipeline in several applications notably in Mobility and the EGNOS Payload of EUTELSAT 5 West B subject of course to its availability. Turning briefly to EUTELSAT 5 West B. A few words on the current status. We are investigating an incident on one of the 2 solar arrays to assess the potential impact, if any, on the performance of the satellite. By way of reminder, the mission of 5 West B consists of the replacement of 5 West A with the reduced payload tailored to current demand and the hosted EGNOS Payload. The main existing customers at 5 West include French and Italian DDT and Fransat and generated circa EUR 30 million of revenues in fiscal year '19. Potential mitigation [ scenary ] are to be assessed subject to the final assessment of the impact on satellite performance. The satellite is fully insured by a launch-plus-1-year insurance for up to EUR 173 million. We expect to provide an update by end of November at latest. Turning then to the financial outlook. Based on a nominal deployment plan, i.e. with EUTELSAT 5 West B operating nominally, there is no change to objective of revenues for the operating verticals of between EUR 1.280 billion and EUR 1.320 billion in fiscal year 2019, '20. Also, given the first quarter outcome, there is no -- an increased likelihood of landing in the lower half of this range. All other elements of the financial outlook are confirmed. Subject to the assessment of the impact of the incidental EUTELSAT 5 West B and its ability to fulfill its mission, this outlook could be mechanically adjusted. Before handing over to you, a few messages to conclude. Our midterm view on Broadcast as a resilient business is unchanged. We are confirming our full year revenue objectives even though the first quarter was slightly behind expectations albeit with an increased likelihood of landing in the lower half of the target range. All other objectives are confirmed with the launch of the 'LEAP 2' cost savings program, we continue to focus on all levels of free cash flow maximization. Cost savings will be reinvested in future growth verticals, while preserving our EBITDA margin around current levels. Thank you very much for your attention. Michel and I are ready for your questions.

[Operator]

[Operator Instructions] And we'll take our first question. It comes from Paul Sidney of Crédit Suisse.

[Paul Sidney, Research Analyst]

Just 3 quick questions please. Firstly, just on Broadcast video in Russia. You said the unplanned return of a couple of transponders there. It sounds a little bit worrying. I was just wondering, could we understand a little bit more about the mechanics of how these transponders can just be handed back and how many of your contracts have this sort of mechanism in place whereby customers can just hand back capacity and ultimately pay less? And the second one is also on Broadcast. Do you still expect Broadcast revenues to grow in full year '20 as you said on the call 3 months ago and maybe to help us understand what could be the positive contribution for EUTELSAT 7C in the second half of the year? And then just lastly on C-band, I was just wondering what are the implications in terms of timing, process and ultimate proceeds you may receive from any CBA decision if you remain outside of the C-band lines?

[Sandrine Téran, CFO & IT Officer]

Thank you, Paul. So I will start answering on what would be the source of additional revenue in Broadcast for the rest of the year. I will ask Michel to answer on the mechanism that we have in our contract in relation to Russia, and we will finish with C-band. So we have -- we expect as we get to Broadcast, as mentioned before in the presentation, to generate additional revenues from the additional capacity that we will have on the second half for Sub-Saharan Africa with the satellite EUTELSAT 7C, which, as you may know, have embarked 19 additional transponders to cover additional opportunities for notably DTH of Sub-Saharan Africa. For this capacity we still have some prospect on other application, but it will definitely contribute to the Broadcast vertical. We also have business in the pipeline in MENA where we also expect to generate additional revenue for the next 3 quarters where we have a very dynamic market. As you know in -- over in MENA, on operation 7/8° West. So that would be the key contributors in Broadcast. Also of course, we have several options to resell the couple of transponders that we got back from the Russian market, and this would also contribute to generate additional revenues for the -- later in the year. As regard to the C-band, so as we mentioned before already, we have expressed that the fact that we have exited the alliance -- the alliance, sorry, the CBA would have no impact in our view on the timing and the process by itself that will be followed by the FCC. So we don't have anything specific on this side although then we are waiting for the decision by December, as we -- as it is, I think, the understanding of everyone on this side.

[Michel Azibert, Deputy Chief Executive Officer]

On the Russian -- on the Russian side, so just to complement, in fact, 36° East is the leading position for serving Western Russia for DTH with basically the 2 main platforms there, DTH platforms, pay TV. What has happened is we have, in fact, negotiated. It's not an end of contract. It's a negotiation that we had with one of them to get capacity returned to us. And this capacity, as Sandrine explained, we are very confident that we will reuse it with another third party, be it the other DTH platform or another one. In context wherein the recent years with Russia, we've been growing our revenues little by little. And since, by the way the economic environment is a little bit better than in the previous years, we are very confident that with this dominant position and the dynamics in the market, you've seen that 4K is growing very much in Russia. So we're confident that we will resell this capacity in the next few months, and the impact on this year's results will be limited.

[Paul Sidney, Research Analyst]

Just a follow-up, Michel. So this is actually pretty specific to one contract. It's not sort of typical, not something that you expect to see typically?

[Michel Azibert, Deputy Chief Executive Officer]

No it's -- again, in general, we have had contracts with our customers in Russia. We are like a few year along like usual broadcast contracts. But in this case, I think there is probably a win-win to have a slight reshuffling of the capacity between different players. So that's a card we played with one of them.

[Paul Sidney, Research Analyst]

Great. And sorry, just a follow-up. For the year '20, Broadcast revenues can still grow?

[Michel Azibert, Deputy Chief Executive Officer]

Do you mean in Russia?

[Paul Sidney, Research Analyst]

Sorry, for overall, given the comments you've made.

[Sandrine Téran, CFO & IT Officer]

We -- as you know, Paul, we don't guide specifically on every single vertical. We have the view on Broadcast that the total revenue in Broadcast should be flattish, with a different trend in emerging market and in Western Europe. So we haven't changed our view on the Broadcast application, but we don't give guidance specifically on each application, as you know.Paul, I will come back to you on the question on the C-band because your question on the delay was not only on the process by itself, but also on the timing for receiving the proceeds. So to answer more precisely to your question, we think it's premature, I would say, to comment on the timing and also the amount actually of the proceeds themselves. But we don't see a reason why, because we have exited the CBA, we should have different treatment than the rest of the parties involved. So we don't think that this is something that should change for us or for the others, the timing for the proceeds.

[Operator]

And we'll now move to our next question. It comes from Aleksander Peterc of Societe Generale.

[Aleksander Peterc, Equity Analyst]

Can we just briefly -- if you'd come back briefly on 5 West B, can you tell us what we are looking at in terms of best-case and worst-case scenario here? Are we looking at a potential total loss? Or is that out of the question? Or is it just partial potential and that's the worst-case? I assume the best case is that everything goes well. And also, can you help us understand if the existing satellite 5 West A can continue to function while you sort out the situation on the B? And what is the fallback solution in case of a total or partial loss?And then secondly on Fixed Broadband, excluding the terminals one-off in the prior quarter base, is revenue now actually flat or up quarter-on-quarter excluding that element? As you highlight, improving revenue trends there. Or are we still seeing quarter-on-quarter down there but at a softer pace? Is that what you're referring to? And can you give any quantification at all on African broadband in Fixed Broadband in the coming quarters? Will we see a tangible effect there and actually year-on-year growth in revenue in this division later in the year?

[Sandrine Téran, CFO & IT Officer]

Okay. I will share the question on Broadband with Michel. On 5 West B, actually we are not really in a position to say much more than what we have already disclosed last week in our press release because the investigation is ongoing, and we have not yet identified the source of the incident. So it's very difficult to say anything in terms of impact on the mission of 5 West B. We have mentioned in our press release the impact in the -- what could be the worst-case scenario, which is that we generated last year EUR 30 million revenues at this orbital slot. And as you know, there is on top the EGNOS Payload which is embarked on 5 West B, which is expected to generate approximately EUR 7 million on a full year basis. So this would be the quantification of what could be the worst-case scenario.Where will we stand? We don't have a view on this yet. We expect to have a view by the end of November. And of course, as soon as we have a view, we will communicate it to give more visibility to the market. The end of life in stable orbit of 5 West A is December 2019. We are looking at options to extend the life of 5 West A for certain services included in inclined orbit, and it's too early to talk about mitigation plan. We need to understand the source and assess the impact first. So sorry for not being more helpful on this. But until the inquiry has reached a conclusion, we cannot say more than this.On the Fixed Broadband, Michel?

[Michel Azibert, Deputy Chief Executive Officer]

Yes, just, in fact, in terms of figures quarter-on-quarter, as you said, you've seen that the decrease is a little bit less than 5%, which means on a EUR 20 million per quarter basis, EUR 1 million decrease, which corresponds more or less to the one-off effect of terminal sales in Russia in the last quarter. So yes, you can say that basically, the profile is now getting very, very close to be flat and hopefully more than flat in the following quarters with the ramp-up of Africa, the continuation of the ramp-up in Russia and an improvement of the situation in Europe thanks to the PPP program and stabilization of the number of subscribers.

[Operator]

And we'll move to our next question. It comes from Michael Bishop of Goldman Sachs.

[Michael Bishop, Equity Analyst]

Just 3 questions for me. Firstly, on the guidance, I was just wondering where you envisaged landing. Clearly, the guidance range was quite wide to start with. Should we now be thinking there's risk to the low end? Or are you still very confident in the low end at EUR 1,280 million?And then my second question is just on the Fixed Data and Professional Video vertical more broadly. I mean if we look back over the last few years, particularly since 2016, we've had a number of warnings -- I mean, Fixed Data yet including Professional Video, it's still 14% of revenues, and the quarter-on-quarter trend is quite concerning. So I get that it's an easier comp in the second half. But big picture, where does this vertical sort of end up over the next couple of years? Or is the visibility just extremely poor?And then the third question is just on video. If you strip out the impact of the Russia transponders and you look at the fact that capacity is growing 3% on your slides, then it would still imply that there's some negative mix or negative pricing impact. So I was just wondering if you could discuss that?

[Sandrine Téran, CFO & IT Officer]

Okay. Thank you, Michael. On the guidance, we -- in the light of our Q1, we think that we have a higher likelihood or probability to land in the low half of the range. So this is why we are maintaining the guidance in terms of revenue but with a higher probability to be in the low half of the range. It's the beginning of the year. So it's very difficult to say more than this, but this is our view in terms of where we should land in 3 quarters from now.As regard to your question on data, so it is right that the comps will be easier for the second half of the year. It is also a fact that we have lost volumes at the end of fiscal year '19 and that we have the carryover effect of this, this fiscal year '20. We have also lost volumes in Q1 related to some civil governmental project in LatAm. So this is why also the decline has been about 20% for Q1.We have a view on this segment, as you know, which is constant over time. We expect the price to keep on going down around double-digit. We are fighting to compensate with volumes, but we expect that this segment will, on a net basis, keep on declining. There will always be some business, of course, in this segment. But it's difficult to say where it will land in 5 years or 10 years from now. But this is the anticipation that we have for this segment in terms of trends. Michel would like to add something.

[Michel Azibert, Deputy Chief Executive Officer]

Just on, Michael, on a shorter-term perspective on these 2 subsegments of Professional Video and Fixed Data. I think we could expect, although the trends are what is described by Sandrine, it's a very strong pressure in price continuing and very strong intensity of competition, but I think we could expect that the results of Q1 are more or less say representative of the results on the full year because, one, in the pipeline, talking about Fixed Data, we have in fact a number of leads which might mitigate the trend. And some of the big bad news are related to loss of volume in particular with -- in the past, I mean, in particular with customers who have outsourced their data networks to their own satellite companies, in 2 cases. And this is, let's say, mostly behind us now, not completely, but mostly behind us. So that would improve. And in the case of the Professional Video, there are reasons to believe that maybe the seasonality of the [ summer ] for occasional use and a couple of other points that we have in the pipeline might help the profile. So I would not expect that the year-end result in terms of decrease is at the level of Q1.

[Michael Bishop, Equity Analyst]

Okay. And if I could just follow up. So what you're saying is there's been some volume losses, but you're not saying that volume growth is overall negative on top of, clearly, the very strong pressure on pricing?

[Michel Azibert, Deputy Chief Executive Officer]

I think in Q1, it has probably been negative. Of course, like probably a mix in -- if it's, let's say, minus 20%, it's like a mix of minus 10% volume and minus 10% price. But the minus 10% price, I mean, there are reasons to believe that it might improve a little bit, but it will always be difficult on the volume. Again, there are re-insourcing by operators -- by telecom operators owning satellite fleets that will not happen -- let's say, will not continue to happen to the same extent in the future. And we have a pipeline of fleets in particular, for instance, in South America where the results Q1 to Q4 are not very good to say the least and the pipeline for the following months is significantly better in countries of the [ sub con ] and Brazil, for instance. So volume should level off or, let's say, be at least much less negative than in Q1.

[Sandrine Téran, CFO & IT Officer]

And Michael, you had a question on whether we have a mixed effect in the pricing of Broadcast in general. So we have such an effect because as you know, the growth is coming from emerging market. And if you look, for instance, at the new platforms that we have signed recently, such as Orby or Ultra DTH or even the Ethiopian Broadcasters, they come with a price point, at least in the initial years, which is below the group average for the total fleet in terms of average price for broadcast transponder. So yes, we have a mixed effect, which brings the average price down for a typical U.S. transponder.

[Operator]

And we'll now move to our next question. It comes from Laurie Davison of Deutsche Bank.

[Laurence Davison, Research Analyst]

It's Laurie here from Deutsche. Yes, so first question, just following on from the last. Given that and given you're guiding for flattish for total revenues, which is including 7C, what should we be expecting for the underlying Broadcast declines for this year and for next? Second question, again on Broadcast. Was the South African return of transponders from MultiChoice? Why are you stripping these out of the TV channel count as one-off? And why are you excluding the removal of simulcast channels as well in TV channel count? Last question is when do you expect to renew Sky Italia?

[Sandrine Téran, CFO & IT Officer]

Okay. I will ask Michel to answer like this. So, Laurie, we have a guidance as you know, which is global and we are not giving a guidance per application and even less detailing what will be every single minus and plus in one application. So we will not give a specific view on the total building up of how we see our growth cash to revenue in fiscal year '20 or in the following years. I will answer Sky and then [ Philippe ] will answer MultiChoice. On Sky, as you know, it's too early to say anything on the renewal. The renewal will impact fiscal year '21. We have several maturity dates in our contracts and there is nothing we can say at this stage in terms of [ this scary ] new role. Maturity dates are staggered and it will be dealt with in fiscal year '21. Michel, on MultiChoice?

[Michel Azibert, Deputy Chief Executive Officer]

Yes, but I'm not -- I got completely the question. I'm not too sure but I think you're referring to the mentioned that we have a contract terminating in Sub-Saharan Africa so just to be specific, this has nothing to do with MultiChoice. It's another DTH platform. By the way, it's public knowledge that this platform has stopped its activity in DTH to refocus on IPTV, it's in Zimbabwe and hence, we lost a few transponders there. Regarding MultiChoice as such, we have a long-term contract with MultiChoice for DStv, which is the coverage of the MultiChoice group outside South Africa and so there is no risk and the relationship with MultiChoice is extremely good, in fact we are considering even expansion in other countries with them.

[Laurence Davison, Research Analyst]

Okay. I understand the response on the first question, you don't want to give details on every single division, but given this is, Broadcast is still over 2/3 of your revenues and more of your profits, it'd be useful to know what the underlying decline you are now expecting is.

[Sandrine Téran, CFO & IT Officer]

Well, we have expressed clearly, Laurie, that our view is that Broadcast is a resilient business. We have shown this over the last 2 years. You may remember that we showed a remarkably stable performance over the last 2 years in terms of [ a few ] Broadcast revenues. We are now reporting the Broadcast revenues separately to be even more transparent and ensure the intrinsic performance of Broadcast. I think that's what we can say in terms of guidance for Broadcast revenues. From here I don't see what more we can give you on -- to answer your question, Laurie.

[Laurence Davison, Research Analyst]

Well, just an underlying rate of decline for this year, next year and going forwards would be what I'm asking for.

[Joanna Darlington, Head of Investor Relations]

Well, Laurie it's Jo, I mean, as you know, we've made it clear we guide for the verticals, the operating verticals as a whole. We don't guide specifically, we don't give numeric indications application by application. We give a trend in each application and what we've said on Video or on Broadcast is that we think it will continue to be fairly resilient, and we have demonstrated that at the end of July with the figures showing that it was, indeed, incredibly resilient. I mean there's not more than we can say.

[Operator]

And we'll now move to our next question. It comes from David Cerdan of Kepler.

[David Cerdan, Equity Research Analyst]

I have a few questions. The first one is on the CapEx for EUR 400 million [indiscernible] for the next year. And then we have the sequence for the next years and mainly for this year. And in your CapEx guidance, what is the proportion of CapEx dedicated to your new satellite, meaning the new satellite that you have recently announced?

[Sandrine Téran, CFO & IT Officer]

David, so we have a CapEx guidance, which is clear and unchanged for the last year, which is an average envelope of EUR 400 million per year. So you can take this as an assumption for fiscal year '20 and fiscal year '21. It can vary as you know from one year to another, we have spent less over the last 2 years, but this is the envelope that you can consider for both '20 and '21. On the normative basis, I would say that on our envelope of EUR 400 million, there is approximately, let's say, EUR 280 million on average again and on a normative basis for maintenance CapEx, which means replacement and the rest for growth CapEx. Of course it varies depending on where we are in the cycle for the investment and, for instance, currently, the portion of the gross CapEx is probably higher than the normative portion because we are currently financing, as you know, Quantum Connect and KONNECT VHTS as gross CapEx in this sort of all EUR 400 million envelope.

[David Cerdan, Equity Research Analyst]

And just to be clear on EUTELSAT 10B. What is the CapEx [ vis-à-vis ] to this satellite and secondly, are you going to spend all the CapEx related to EUTELSAT 10B up to 2022?

[Sandrine Téran, CFO & IT Officer]

So for the specific question on E 10B, so it is included in our CapEx envelope of EUR 400 million. We had headroom in this envelope for unconnected CapEx before we ordered the satellite. The CapEx for E 10B will be cashed out over the period of several years, and it is a fact for E 10B and it is a fact for any of the satellite but it is included in the overall envelope that I have indicated before.

[David Cerdan, Equity Research Analyst]

Fine. Just to be clear that your plan for Capex is EUR 400 million up to June 2022? EUTELSAT 10B is stated to be launched in 2022. So the question is do you expect to have some CapEx related to 10B beyond June 2022?

[Sandrine Téran, CFO & IT Officer]

So the EUR 400 million envelope that we are mentioning can be taken as a good proxy for a longer period than 2022. If your question is do we have a peak of CapEx after 2022, the answer is no. We are comfortable with this envelope of EUR 400 million. So -- and is your question is, will we pay some amount related to E 10B after 2022. I do not exclude this. That will depend on the way we finance E 10B and that will also depend on its actual launch date. So it's difficult to say now, if there will be some amount paid for this specific satellite up to 2022.

[David Cerdan, Equity Research Analyst]

Okay and my last question is just on the 5 West B. So the worst case, you said what would be the worst case in terms of revenues, [ there is nothing ] in this [indiscernible]. Does it mean that you will receive the compensation of EUR 173 million from insurance and you will -- and so the question is, as only a portion of the satellite would be impacted by the [ incident ]. Does it make sense to say that the worst case scenario is to lose at least EUR 30 million [indiscernible] revenue?

[Sandrine Téran, CFO & IT Officer]

So if we lose completely the satellite, here it is fair to say that we will receive the full indemnity and we said that the satellite is insured up to EUR 173 million. So I hope it answers your question more clearly, and the worst-case scenario is the one I have expressed in terms of revenues, which carry into the revenues that we generated last year of EUR 30 million plus the EUR 7 million of the existing [ lot ].

[Operator]

And we can now move to our final question. It comes from Nick Dempsey of Barclays.

[Nicholas Michael Edward Dempsey, Research Analyst]

Yes I've just got 2 left please. So just having another go on 5 West B. Just to help us understand maybe from a technical point of view. You flagged in your press release there was an incident on 1 of the 2 solar arrays. From a layman's point of view, that sounds like the other one is fine and therefore there should be a good chance of there being some life in the satellite and it being able to perform some of its tasks, but please tell me if 1 solar array being lost could mean very possibly that the whole satellite is a write-off? Second question, just to understand the one-off negative in Q1 in mobile connectivity. So there's EUR 1 million of negative effect on Q1 revenues. You're saying this is a revenue recognition thing, and we should get that EUR 1 million in Q2. So, should we just take what we previously modeled for Q2 year-on-year for mobile connectivity and add EUR 1 million to that, so about 5.0 on year in Q2 growth or is it not that simple?

[Sandrine Téran, CFO & IT Officer]

Okay, thank you, Nick. So on 5 West B, actually your question is one of the questions which is being looked at by the inquiry, which is that we need to understand the source of the incident to be able to affect if it may have an impact on the second one. So this is the question we cannot answer today. It will depend on the outcome of the investigations, the technical investigation. On the negative in Q1 for the mobility segment. So yes, it's almost as simple as you said, because of revenue recognition in Q1, we did not recognize this EUR 1 million in Q1, but we will catch up this same million in Q2. So it's as simple as moving this million from Q1 to Q2.

[Operator]

We have no further questions at this time. We'll hand the call back to you.

[Sandrine Téran, CFO & IT Officer]

Thank you. Thank you very much, everyone. We wish you a very good evening. Talk to you soon. Bye.

[Operator]

This concludes today's call Thank you for your participation. You may now disconnect.