Eutelsat Communications SA
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Eutelsat Communications SA
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Good day, and welcome to the Eutelsat Communications First Quarter 2021-2022 Revenues Presentation Conference Call.At this time, I'd like to turn the conference to CFO, Sandrine Téran. Please go ahead.
Thank you very much. Good evening, and thank you for joining us on this call, where we will present our first quarter 2021-22 revenues. I am Sandrine Téran, CFO, and I am joined by Michel Azibert, Deputy CEO.First, a quick look at the main events since the beginning of the first quarter. We successfully launched EUTELSAT QUANTUM, which is expected to enter into service imminently. To be located at 40 degrees east, it brings unprecedented flexibility to address the government and mobility market and a strong pipeline of well-advanced opportunities with both U.S. government and other customers. The Phase 1 of C-Band transition has been completed and validated by the FCC.The attendant, USD 125 million payment is expected around the turn of the calendar year. Thanks to our simplified migration strategy, the operations necessary to fulfill Phase 2 obligations are now close to completion and remain on track with the objective to receive the related proceeds by the end of our current fiscal year.In Broadcast, we partially renewed the capacity with Nilesat at 7/8 degrees West and the resale of capacity are in line with expectations. I will come back on this later. We made additional progress in our Fixed Broadband rollout with several distribution agreements signed. We further increased our stake in OneWeb to become its second shareholder. And at the same time, OneWeb is gaining significant operational and commercial traction.In terms of performance, Operating Verticals revenues were down 3.4%, which puts them in line with the midpoint of our full-year objectives, and we confirm our guidance for the full year. Since the beginning of the financial year, we achieved strong progress in our Fixed Broadband strategy roll-out. With the distribution agreement with Deutsche Telekom for the German capacity on EUTELSAT KONNECT, a wholesale commitment from Hispasat for the Iberian capacity on the same satellite with possible expansion to connect VHTS.After the wholesale deal with Orange and TIM already in force, 4 of the 5 most populous European countries are covered by agreements with major operators. Our retail approach will be a complement to wholesale deals in other countries. In Africa, we continue to strengthen our distribution network with a multiyear capacity contract with Nigeria's Globacom, the first of this magnitude with a mobile operator in the continent. These achievements confirm the role of satellite as a complementary infrastructure to enable telecom operators to achieve ubiquitous reach for high-speed broadband and prepare the ground for further growth.In MENA, since the acquisition 3 years ago of Noorsat, a leading distributor, which has strengthened our commercial firepower across the region, we have been implementing a new go-to-market approach and attendant pricing strategy. In a context where the capacity sold to Nilesat at 7/8 degrees West position was priced at a discount, our objective has been to exercise our pricing power at full scale, hence, maximizing long-term value creation potential while minimizing the short-term impact that would stem from nonrenewal with Nilesat. In consequence, we opted for partial renewal of the capacity and reached a multiyear, multi-transponder agreement with Nilesat with improved pricing terms. And we are making strong progress with the resale of the remaining capacity with multiyear, multi-transponder agreements with Emirates Du, Jordan Media City and Abu Dhabi Media.While the return of capacity by Nilesat will create a temporary headwind for Broadcast revenues, we are confident our strong pipeline of opportunities will lead to the resale of the remaining capacity at higher prices. Overall, the scenario, which is in line with our expectations and captured in our objectives, provides a good balance between the minimization of the short-term revenue impact and the opportunity to maximize the long-term value creation for this key orbital position.We have further strengthened our investment in OneWeb. The first finalized -- we first finalized our initial investment of $550 million. We exercised a $165 million call option on the latest funding round by Bharti, which will raise our stake to 23%. It makes Eutelsat the second largest shareholder of OneWeb. Over the last few months, OneWeb has gained significant operational and commercial traction. 11 launches are now completed, with more than half of the constellation now in orbit.The partial entry into commercial service of the constellation in region north of 50 degrees latitude is on track for the end of 2021 with several demos already underway. Numerous distribution partnerships are secured across multiple verticals with large players, including AT&T, BT, Hughes and Peraton. And recently, an agreement was signed with NEOM, including a $170 million firm precommitment for OneWeb capacity across the MENA region.Now let's look at the Q1 performance by application. As a reminder, all commentary and figures relates to a like-for-like basis, i.e., at constant currency and perimeter. Total revenues for the first quarter stood at EUR 287 million, down 8.9% on a reported basis. This included a negative currency effect of EUR 2 million, reflecting a euro-dollar rate at 1.18 this year versus 1.16 last year. The negative perimeter effect of EUR 10 million from the disposal of euro broadband infrastructure only partly offset by the consolidation of Bigblu Broadband.Other revenues, which are by nature volatile, were down EUR 6 million, with almost half of the impact coming from the variation in hedging revenues. As a result, revenues of the 5 Operating Verticals were down by 3.4% on a like-for-like basis.Turning to the revenues of each of the 5 verticals. Broadcast, 62% of group total recorded revenues of EUR 178 million, down 6.5% versus last year. Data and Professional Video, 14% of group total, saw revenues of EUR 38 million, down 1.4%. Government Services, 13% of group total, saw revenues of EUR 37 million, down 1.8%. Fixed Broadband, 5% of revenues, stood at EUR 15 million, an organic progression of 65% year-on-year. And Mobility, 6% of revenues, saw revenues of EUR 17 million, up 0.8%.Let's look at each one in more detail. Broadcast revenues amounted to EUR 178 million, down 6.5% year-on-year. They reflected the carryforward effect of the slowdown in the pace of new business against the COVID backdrop, which notably affected resellers across Europe during fiscal year 2021. The negative impact of circa 1.5 points stemming from a tough comparison basis as the first quarter of fiscal year 2021 included a positive one-off of circa EUR 2 million and lower revenues from FRANSAT. At September 30, 2021, the total number of channels stood at 7,052, up 5.5% year-on-year. The number of high-definition channels stood at 1,942 versus 1,739 a year earlier, up 12% and representing 27.5% of channels compared with 26% a year earlier.On the commercial front, we continue to see some signs of return to normality, notably in Europe, with a multiyear agreement signed with the Polish national commercial broadcaster, TVN, for an additional transponder at the HOTBIRD neighborhood and a contract with Zeonbud, Ukraine's nationwide DTT operator for capacity at the 9 degrees East orbital position. As mentioned before, the resale of capacity at 7/8 degrees West is well on track.Data and Professional Video revenues stood at EUR 38 million, down by 1.4% year-on-year. Compared to the low comparison basis of Q1 fiscal year '21, the pace of year-on-year decline was slightly more pronounced in Professional Video, which now represents 1/3 of revenues for this application than in Fixed Data, where improved volume trends are compensating for most of the impact of competitive pressure on pricing. Quarter-on-quarter, revenues were down by 6.2%. This reflected in particular a one-off related to the sale of equipment for circa EUR 1 million in Q4 '21 as well as a sequential decline in Professional Video.On the commercial front, EUTELSAT 172B was selected by Lintasarta to support rural backhaul in Indonesia, highlighting once again the opportunities for rural backhaul following similar agreements last year in Latin America and Oceania.Government Services revenues stood at EUR 37 million, down 1.8% year-on-year. They reflected mostly the negative carryforward effect of renewals with the U.S. administration. The Fall '21 campaign resulted in an estimated renewal rate of around 75% in value. It reflects the context in MENA, notably the withdrawal from Afghanistan as well as the usual slight erosion. In the coming quarters, revenues tends to benefit from the progressive ramp-up of EUTELSAT QUANTUM, for which we are seeing a positive commercial momentum both for U.S. government and other customers in the Government and Mobility vertical.Fixed Broadband revenues stood at EUR 14.6 million, up 65% year-on-year, excluding the already mentioned perimeter effect. They're reflected in particular the wholesale agreement with Orange and TIM and to a lesser extent the progress of our retail and African operations. On a quarter-on-quarter basis, revenues were down by 2.6% due to the erosion of the heritage business of Bigblu Broadband and KA-SAT and the volatility linked to terminal sales. In the coming quarters, we will benefit from the ramp-up of the recently announced contracts, in particular, the wholesale agreement with Hispasat on EUTELSAT KONNECT, and to a lesser extent, the agreement with Deutsche Telekom.Turning to Mobile Connectivity. First quarter revenues stood at EUR 17 million, up 0.8% year-on-year. They reflected on one hand continued progress in Maritime as well as the contribution of the contract with Global Eagle signed in the second half of fiscal year '21. On the other, the ongoing impact of lower revenues from certain service providers in the Aero Mobility segment. Quarter-on-quarter, revenues were down 3.6% with Global Eagle already in the base.The backlog stood at EUR 4.2 billion at September 30, 2021, versus EUR 4.4 billion at end September 2020 and end June 2021. However, it does not yet include the partial renewal of capacity with Nilesat nor the agreement with Hispasat. It was equivalent to 3.5 -- 3.4x, sorry, 2020-2021 revenues with Broadcast representing 64%. The number of operational transponders at 30th September 2021 was broadly unchanged year-on-year and quarter-on-quarter in the absence of entry into service of any new regular capacity or end of stable-orbit life of any satellite over the last 12 months. The number of utilized transponders stood at 984, up 18 units on a year-on-year basis and by 3 units quarter-on-quarter. As a result, the fill rate stood at 71.5% compared with 69.9% a year ago and 61.2% (sic) [ 71.2% ] at end-June 2021.Let's turn now to the outlook. Within the first quarter, in line with our expectations, we confirm our fiscal year '22 objective of revenues from the 5 Operating Verticals of between EUR 1.110 billion and EUR 1.150 billion in fiscal year '22 at euro-dollar rate of 1.20 as well as all the other objectives for the current and subsequent year, which are summarized on this Slide 17. This includes our policy of a stable to progressive dividend with a dividend of EUR 0.93, recommended at the Annual General Meeting, which will take place on 4th November.The next few years are set to mark the end of the negative top line trend with entry into service of substantial incremental capacity, much of it with firm precommitment. EUTELSAT KONNECT is already significantly derisked with wholesale commitments from Orange, TIM and Hispasat, covering around 40% of the capacity. EUTELSAT QUANTUM with a strong pipeline of opportunities.HOTBIRD 13G will carry an incremental EGNOS payload, bringing some EUR 7 million revenue per annum over 15 years from early 2023. KONNECT VHTS will start operations in H1 2023 with firm precommitment from Orange, Thales and TIM, potentially complemented in the future by commitment by Hispasat and Deutsche Telekom. It will represent a major milestone in our connectivity strategy in Europe.EUTELSAT 10B due to start operations in H1 2023 will bring 35 gigabytes on incremental HTS capacity for Mobile Connectivity over EMEA. It is partially precommitted by Gogo and Panasonic and also has a firm precommitment from Overon for regular capacity. And finally, Eutelsat 36D, predominantly a replacement satellite for Broadcast, carries an incremental UHF payload operated by Airbus. Firm precommitment for incremental capacity already represents a backlog in excess of EUR 750 million, with an average contract length of around 11 years.On that note, I thank you for your attention. And Michel and I are now ready to take your questions.
[Operator Instructions] We'll take our first question from Roshan Ranjit with Deutsche Bank.
Great. Just got 2, please. On the Nilesat renewal, you talk about temporary headwinds for Broadcast. Can I just get a bit more detail as to how that kind of fits in with, I think you gave a kind of minus 4% Broadcast guidance for fiscal year '22, so you said in line with FY '21, so if that changes? And you talk about the pipeline to resell further capacity, what is the kind of time frame on that? And are there ongoing discussions?And just quickly on the Fixed Broadband, again, you've announced, I think, yesterday, 2 more kind of markets where you are reselling. These all seem to be in a kind of Central-Southern European countries. Are there opportunities in Northern Europe, more kind of in Nordic regions? Or are those markets a bit more closed off?
Thank you, Roshan, for the question. I will take the first one, and Michel will answer on the Broadband question. So on Nilesat, so as you correctly pointed out, the partial renewal of the capacity will create a temporary headwind on Broadcast revenues from the middle of Q2, so it will be visible starting this current quarter when the previous contract ends. To be more specific and to quantify what is this impact in terms of revenues, you can consider that all things being equal, it would decrease the quarterly base of revenues by a mid-single-digit million euro figure. So the impact in the next coming quarters on the revenues -- on the Broadcast revenues will be approximately of the mid-single-digit million euros.What does it mean for the Broadcast guidance for fiscal year '22? And it was the second part of your question. So in line with the comment we made in July, we expect our revenues in Broadcast to be at the mid-single-digit decline, as it will be impacted, first, by the carryforward effect of the slowdown in new business. That we can see on the Q1 that we are releasing now as well by this temporary headwind related to Nilesat from the middle of Q2, as I mentioned before. So no change in our view on the guidance as the impact of the -- partial renewal on Nilesat and the attendant resale plan are fully in line with our expectations and are accounted for in our forecast. So no change in our view on the '22 revenues for Broadcast.The time frame for the resale plan, I think it was the third part of your question, so we expect the temporary headwind to largely wash out in fiscal year '23. We are confident that we will be able to resell most of this capacity. But of course, we cannot completely control the time frame, but this is -- at this stage that we expect to see this impact gradually washing out in fiscal year '23.
For the broadband -- Fixed Broadband in Europe, first, talking about KONNECT, and I will talk about KONNECT VHTS. On KONNECT, as you understand, basically, through the wholesale agreement, we have sold the entire capacity, keeping some capacity for Mobility, but the entire capacity for France with Orange, with Italy -- for Italy with TIM and now for Spain and Portugal with Hispasat. So we concentrate our efforts now on the retail side in the other countries. And the case of Germany is a specific one because we have the distribution agreement with Deutsche Telekom, but it is not exclusive. So we continue the retail at the same time that Deutsche Telekom will tell.With regards to the other countries in the perimeter of KONNECT, these are basically U.K., Ireland, Austria, Switzerland, Czech Republic and a little bit of the Nordics, we're focusing on the U.K., Ireland, first, but we have now opened the service -- the commercial service as a retail service in Austria and in the Czech Republic. A little bit more difficult, the markets in the Nordics, because there is a lot of connectivity by fiber, but we're also going to start there.And with regards to KONNECT VHTS, we will have obviously a geographical extension to Central and Eastern Europe, where we already have preliminary discussions with a few potential customers for wholesale or pay as you go deal in other geographies, in other big countries outside the current footprint of KONNECT.And finally, we'll then start checking some other countries which are not in Europe, like, for instance, Turkey or Morocco. But basically, we are going to mix the wholesale approach and the retail approach with a priority to the wholesale deals with telcos when we can achieve them, and we are confident that we will deliver more on this side.
And our next question comes from Sami Kassab with Exane BNP Paribas.
A few questions, please. The first one, can you elaborate on the full renewal rate with DoD? 75% is towards the lower end of the historical range. Was it all about Afghanistan? Or are there other drivers that would explain that?Secondly, still on Government, can you help me understand Peraton? Peraton historically had signed with QUANTUM, now they have signed with OneWeb. Does that mean that their needs are better served with LEO than GEO? Or do you still expect to generate significant revenues with Peraton and QUANTUM?And lastly, what were the main reasons why the Board recently decided to reject the offer from Patrick Drahi? Was it just about price? Or did you have other concerns that you may be able to briefly highlight?
Thank you, Sami. The first question on the renewal rate in value in the Government vertical. So 75% in value. So it's on the low range of the historical renewal rate. This is correct. It's the result of the usual slight decline in price. There is always some erosion coming from the price component when we renew those contracts. But more importantly, there is indeed a volume decline related to the MENA context, and in particular, the withdrawal from Afghanistan, which has a significant and an unexpected impact on this renewal rate. So that's the near and main explanation of this renewal rate, which is lower than expected. Most of the impact will come -- will start in Q2, even though we [indiscernible] a little more in the Q1 that we are beginning now.The second question on Peraton. So I will not comment the strategy of Peraton between purchasing GEO versus LEO, frankly, it's not my place, and we're unable to do that. It's true that we said in the past that we were having discussion with Peraton on QUANTUM. It was not a firm commitment. It was more -- it was a reservation and not a firm commitment. I will not comment either on the pipe that we are having with QUANTUM, which is very dynamic, and we have a very strong pipeline for QUANTUM. And I have no specific comments to do on this -- those customers at this stage. And we will comment on the execution of contracts when the contracts are fully negotiated and final. So nothing specific I can say on this Peraton question.On the third question, which is why did our Board reject the offer made by Patrick Drahi at the end of September. Well, there is nothing more I can say other than what is already included in our public statements that we immediately issued at that time, which is that the Board has decided not to engage in discussions based on the terms of the proposal. So that's all I can comment on this. I have no further information or comments to make on this.
And our next question comes from Terence Tsui with Morgan Stanley.
This is my first time on the Eutelsat call. So just apologies if my questions do come across as a bit basic. I just had 2 really quick questions, actually. The first one on OneWeb. Perhaps you can share with us the capacity of the satellites that OneWeb is launching and how that compares with other LEO constellations? And I'm just interested in finding out about how much funding OneWeb now has? And what do you think about OneWeb's next CapEx plans and regarding the Gen 2 fleet, that will be interesting, please?And then my second question is a bit of a follow-up on the Patrick Drahi offer. But just more broad around your thoughts around potential industry consolidation. Did the offer from Patrick Drahi made at the end of September make you think more about industry consolidation and the need to perhaps share more networks more in the future? Has that changed at all Eutelsat's thinking around [indiscernible] consolidation in the future?
Thank you, and welcome, Terence. I will answer the question on OneWeb on the funding, and I will ask Michel to kindly give you more detail on the capacity and the capability of the constellation. And then I will come back on your question on consolidation.So on the funding side for OneWeb, we are at a profitable stage where we can say that the Gen 1 is now overfunded with all the capital injections that have taken place recently. So it's overfunded by several hundred million U.S. dollars. So there is no need for additional cash injection in OneWeb in the short term. As far as the Gen 2 is concerned, and this is with the Gen 2 CapEx financing that indeed there may be some need for additional funding. It could be debt. It could be equity. It remains to be seen. The Gen 2 would be in service at the earliest in civil year '26, which means that the related investments would not be very material before civil year '24, civil year '25. So it's not a question for tomorrow.The Gen 2 financing, there is still some time and some work to do actually to design and make the decision under Gen 2 and then organize the financing mostly as from civil year '24. Michel, on the capacity of the constellation?
Yes. So the capacity -- the usable capacity of the constellation when it's fully deployed will be 1.1 terabits per second. As you probably know, the constellation will first, before the end of this year, cover the polar regions above 50 degrees North latitude. And then the full deployment will happen by the end of next calendar year. At this point in time, the capacity, obviously, will be spread over all the regions like, for instance, one continent being covered by something like more than 100 gigabits per second. If we talk [indiscernible] about Africa, it's more in the range of 150, just to give an example of what it covers and given, of course, that if we cover also the oceans and the pole.Currently, as you know, they have launched 10 batches. So they are a bit more than halfway in terms of the deployment, and we are very confident that with the pipeline that we see coming, the commercial, let's say, results, the commercial outcome will be quite good from the beginning as evidenced also by the deal that Sandrine mentioned, which has been made public a couple of days ago with NEOM for the MENA region. So quite a lot of capacity and interesting and encouraging first signals regarding the [ take rate ] of this deal.
Thank you, Michel. And your last question on the -- our view on the consolidation in the industry. So we haven't changed actually what we have already expressed before, as the view remains unchanged. We think that M&A could be a source of substantial CapEx and OpEx synergies in our industry, and we would welcome consolidation in terms of -- as it can be a significant source of value creation, value creation for potential shareholders -- for the shareholders being always the key driver in the way we are looking at M&A opportunities.This being said, we are convinced that we have a solid stand-alone strategy. And with our investments in OneWeb, which provides us with a foothold to fully capture the massive opportunities in connectivity, we are convinced that we have a solid stand-alone strategy. But we would welcome consolidation if it was a good opportunity for Eutelsat and its shareholders, as we already mentioned before.
We'll take our next question from Nicola Gifford with Goldman Sachs.
I've just got a follow-up on the consolidation point, and specifically whether, in your perspective, do you think there's any obstacles from a regulatory or political perspective around consolidation?And then secondly, I had a question on the announcement of your CEO departure during the quarter. Could you please comment on the process that you're going through to find a new CEO and when we might expect an update on that?
Sorry, I didn't get the second question. I apologize.
During the quarter, you announced the departure of your CEO or that he will be stepping down. Could you please comment maybe on the process that you're going through to find a new CEO and when we might expect an update on that?
Okay. Thank you. So I will start with this one. So on the new question. So Rodolphe has announced very recently that he will step down as the CEO of Eutelsat. The Board immediately informed that search process was launched. So this has been done immediately. So the time frame is not something that will be precise by 1 month, but the process has started already. And of course, we will inform our shareholders and the market as soon as the -- a new CEO will be able to come onboard, but it's a process which is in the hands of the Board, and they are working on this very proactively and the process has started since a week now.And of course, in the meantime, the company can rely on the experience of the Executive Committee and on Michel, who most of you know very well. He is our Deputy CEO. And he can, of course, work [indiscernible] an interim period before we have a new CEO coming onboard.The other question on the consolidation, I understood it as very, very generic, whether there are -- would we can foresee some regulatory issues in the context of a potential consolidation? Well, I would -- was it the question? This is what you were asking actually?
Yes, exactly. Exactly. From a regulatory or political perspective whether it would be possible.
So I would just foresee the standard regulatory questions around antitrust. But apart from this, I don't see anything specific in our industry in terms of regulation that could be a hurdle to consolidation. Of course, we know that our industry is sometimes close to various governmental interests. And I'm sure you know, for instance, the specific context of SES and Luxembourg government, but it has nothing to do with regulatory. So I don't see anything special other than the usual suspect of antitrust clearance, if needed, depending on the price.
And our next question comes from Aleksander Peterc with Societe Generale.
I would just like to get a little bit more clarity on the whole Nilesat situation. So do I understand this correctly that you're going to have this headwind of EUR 5 million, which you call temporary? And then when you refer to it washing out, do you think that you can recoup that with additional contracts we're going to secure? So this revenue is going to come back into the top line. So while we have a bit more depression in Broadcast in the near term in fiscal '22, and we should logically have much better prospects in fiscal '23, with that the fact that you have now, you're talking about certain normalization in Broadcast markets as well post the COVID depression that we had in the new business.So I'm just trying to understand, is this a step down that should then now model going forward? Or will there be a catch-up and maybe even some very temporary growth as a result of the effects?
Sorry, sorry, sorry. I was answering the question, but my mic was not on, so -- do you hear me now? Okay. Yes. So on the Broadcast revenue profile deriving from the Nilesat partial renewal, what we are saying is that the partial renewal of the capacity with Nilesat is the best balance that we have assessed to maximize our ability to increase the price over time at this position, while limiting the impact on the short term for the nonrenewal of part of the capacity with Nilesat. So we are exactly at this point. And we will resell this capacity that we have recovered from Nilesat, and we will resell this capacity in the next coming months, and we have a very strong pipeline to do so.While we are doing this, and we are executing those contracts, we have already executed 3 contracts that I have mentioned earlier when I was presenting the overall subject. In the meantime, our assessment for this fiscal year, indeed, is that we will have a EUR 5 million impact, circa EUR 5 million, on a full quarter basis in fiscal year '22. This is the short-term impact, the temporary impact that we will carry in our top line, while we are reselling the capacity at a significantly higher price to other customers. Just to give you a sense for the 3 contracts that we have already executed, we have increased the price by a double-digit percentage. So we are very confident that we are able to exercise our pricing power and to achieve the strategy that we have defined at this orbital slot.Once we have restored this capacity, of course, we will come back to a more, I would say, usual year-on-year change in revenues for Broadcast. And this weight that we will have this year will progressively disappear, and we expect it to be largely wash out in fiscal year '23. I hope it's clear now.
Okay. And just very briefly, a follow-up on the CEO change. So can you confirm your -- this is an external recruitment, you're not looking at internal [indiscernible]?
Sorry, your voice is very far.
Apologies. Regarding the CEO search, it is basically an external recruitment. Not -- you're not looking in-house for a successor.
There is a full process, which is launched. So it will look at, of course, external candidate. If there are candidates internally, I'm sure they will be considered by the Board. But nothing I can imagine in advance or say in advance.
Okay. All right, sorry, I just have to ask this. Can you assure us that there is no correlation between the [indiscernible] moves around your stock to Rodolphe's decision? I mean it's a question for Rodolphe, I suppose, but I'd just like to have your view on that.
Yes, I think Rodolphe has been clear on this, he is leaving Eutelsat to pursue a new opportunity, which is already known. We knew where Rodolphe is going, is going for a much bigger company. So it's something which is not related to the [indiscernible] context.
And at this time, I would like to turn the conference back over to our speakers for any additional or closing remarks.
Thank you very much. Thank you for your attendance. It was a pleasure to talk to you again tonight, and we're wishing you a nice evening. Thank you. Bye-bye.
This concludes today's call. Thank you for your participation. You may now disconnect.