Eutelsat Communications SA
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Eutelsat Communications SA
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Good day and welcome to Eutelsat First Half 2022 and 2023 Results Conference Call and webcast. Today's conference is being recorded.
At this time, I would like to turn the conference over to Eva Berneke, CEO. Madam, please go ahead.
Good morning, everyone, at least those of you on kind of European time zone, and welcome and thank you for joining us today for Eutelsat’s half year 2022 to 2023 results presentation.
I'm happy to be joined here today by Christophe, who's our new Chief Financial Officer.
Christophe brings a wealth of experience as CFO from more than 30 years in global industries with operational excellence and long-term investments as key elements. I'm sure he'll contribute positively to the transformation of Eutelsat and you'll hear more from him in just a second.
But let's now turn to Eutelsat’s, first, a quick overview of the highlights of first half. In terms of numbers, first half operating verticals revenues were in our forecast range of objectives for the full year. Despite this, which is a revenue decline, we reported further industry leading profitability with an EBITDA margin at 73%, a level that also reflects the progressive rebalancing of our business towards connectivity. On the operational side, we successfully launched four satellites this half year, ensuring a seamless service for existing customers, and also paving the way for return to growth. First half also saw the rapid ramp up of EUTELSAT QUANTUM with now seven out of eight beams commercialized in the first year of service.
We've also made further progress on our telecom pivot, the successful reorganization of the company along two business units, one for video and one for connectivity, to reinforce customer centricity, and better address the different market opportunities, as well as ramp up new Eutelsat Advance services. With all of this we confirm the standalone full year 2022, 2023, as well as the longer term financial objectives. And finally, I'll make an update on OneWeb commercialization which is progressing according to plan and closing is still expected in Q2 or Q3 of this calendar year.
Looking at Eutelsat first half financial performance, total first half revenue stood at 574 million Euros, down by 6.1% on a like-for-like basis. Revenues of the five operating verticals stood at 582 million Euros, down 4.1%. The EBITDA margin was just under 73% at 72.9% at constant currency, down 3.2 points versus last year. Cash CapEx was 194 million in first half, which is higher than last year. It reflects the phasing of the satellite programs with four launches this half year delivery and launch and it's not representative of the full year. In the second half, we don't expect to launch any satellites from Eutelsat.
Discretionary free cash flow stood at 82 million Euros on a reported basis and 121 on an adjusted basis, it is down 111 [Phonetic] compared to H1 22. Likewise, this is not representative of the expected full year figure because of the phasing of the satellite launches into this first semester. And net debt-to-EBITDA stood at 355 at the end December, broadly stable against last year.
As mentioned, this past semester has seen considerably operational success with a record number of four satellite launches. These launches illustrate operational excellence and our capacity to select the best industrial partners, in a context where demand for satellites and launches is just booming. First, start September we launched KONNECT VHTS, which was built by Thales Alenia Space and launched by Alenia Space in Kourou in early September. KONNECT VHTS brings connectivity across Europe and Africa with more than 500 gigabits, covering the European and African geographies.
The two next ones is the HOTBIRD 13F and 13G, that both were built by Airbus Defence and Space and launched by SpaceX in October and December respectively. These two serve our video market on our key 13 degrees position across Europe. And then finally, but not least, EUTELSAT 10B, which was also built by TAS was launched by SpaceX in late November. E 10B is also providing additional capacity for the mobility market in Europe.
Throughout the development of these programs, we managed to keep their cost within our cash CapEx annual envelope of 400 million. These launches will pave the way for return to conductivity giving growth, while ensuring seamless service for existing customers. KONNECT VHTS with 500 gigabits of capacity is dedicated to fixed broadband and mobile connectivity, with more than 450 million secured incremental backlog from operators like Orange, Telecom Italia and TAS. EUTELSAT 10B will give incremental 30 gigabits in the KU band addressing mainly mobile connectivity, but also with a lot a strong list of pre-commitment science with Panasonic but we're also embarking a wide beam C and KU band payloads to ensure continuity for customers that are already on the existing satellite on EUTELSAT 10A. And then finally 13F and 13G, the two HOTBIRDs will ensure broadcasting service continuity at our flagship 13 East position. That broadcasts over 3800 TV channels just by that position. And additionally on one of the HOTBIRD’s, the 13G, it is also hosting the EGNOS GEO-4 payload, which gives European Space additional capacity.
One word on EUTELSAT QUANTUM, which just celebrated one year anniversary in operational service, it came into operational service in November 2021. This software defined satellites, first of its kind, has given customers a real-time adaptability to evolving business needs. It gives full in orbit reconfiguration in terms of footprint, spectrum, power and capacity. Gives customers remote control of beam customization and it gives enhanced security features and interference mitigation capabilities. After just one year, seven out of eight beams have been commercialized. Five of the seven are incremental capacity was two for government application, and three for mobile connectivity, one which was just booked this last quarter. The satellites contribution is shaping up to be more bound towards mobile connectivity, where demand is truly booming. We’ll also have a well advanced discussion for the commercialization of the final beam, hopefully in the coming quarter.
I'll move on now and give you a bit of a deeper dive in the operating verticals. I start with the full results where first half revenue stood at 574 million Euros, up 0.3 on a reported basis. Other revenues, as a reminder, revenues other than those generated from the commercialization of satellite capacity are volatile by nature and these were down 12 million where most of this impact resulting from the variation of hedging revenues. Excluding a positive currency effect 37 million based on Euro to dollar rate of one on one versus 1.17 last year, revenues of the five operating verticals were actually down 4.1% on a like-for-like basis.
Let's look at each of the five operating segments in more detail. As a reminder, all comments are based on a like-for-like at constant currency. Broadcast, which is today 58% of group total, recorded revenues of 339, down 6.7% versus last year. Data and professional video, which is 14% of group total, saw revenues of 83 million, down 2.5%. Government Services, 12% of group total, saw revenues at 67 million, down 20.3%. However, fixed broadband which today represent 6% of revenue, came to 37 million with an organic growth of 17% and, finally, mobility, which is about 10% of total saw an increase with 32.7% to revenues of 56 million. Other revenues, as I said, stood at minus eight, which includes the 12 million negative hedging impact.
I’d start with Broadcast. First revenues were down 6.7% to 339 million. This reflects both which we've discussed previously, the headwind we have in the renewal of the capacity of Nilesat at 7/8°West. It also includes the negative impacts of the non-renewals capacity with Digiturk, which came in place in mid-November. And then finally, it reflects the general negative trend across the entire video broadcast segment with revenues across Europe. Second quarter revenues were down 6% on a year-to-year basis and 1.4 and a quarter-on-quarter, reflecting principally the face out of the Nilesat impact from mid-October, while the Digiturk impact start to materialize only from mid-November and then onwards.
Looking ahead, over the full year, the trends to see a slight deterioration compared to that first half as the impact of the sanctions against certain Russian and Iranian channels will be fully embarked in second half.
Data and professional video; data and professional video revenue stood at 83 million, down 2.5% year-on-year. In fixed data, which is two thirds of the revenues, the improved volume trends are now upsetting most of the negative impact of competitive pricing pressure. Professional video, which is the one-third of the video in the segment, recorded a mid-single digit decline, namely on the back of low occasional use in Q1, especially in the Americas, as well as the structural headwinds. Top line for the year as a whole is expected to decrease in the mid-single digit range due to the seasonality of some contracts, notably in professional video.
Government Services stood at 67 million, down 20.3% year-on-year. They reflect a negative carry forward effect of prior US Department defense renewals, in particular with a 65% renewal rate in the Fall 2022 campaign following the 75% renewal rate in the Spring 2022 and that's due to the specific US geopolitical context and our capacity mapped against that.
The second half will reflect the full effect of the abovementioned headwinds.
Fixed broadband’s first half revenues stood at 37 million, up 17% year-on-year on a like-for-like basis. This reflected the contribution from four European wholesale agreements with Orange, TIM, and more recently is Hispasat and Swisscom as well as to a lesser extent the growth of the African operations. Over the full year fixed broadband should be broadly stable as a comparison basis now better reflects the abovementioned contracts in Europe and Africa.
Growth in this segment is of course expected to re-accelerate in next financial year on the back of the entry into service of the KONNECT VHTS, which will provide much more capacity than on the current KONNECT satellite.
And finally, on mobile connectivity, first half revenues stood at 56 million, up 32.7 year-on-year, reflecting in particular the commercial success of EUTELSAT QUANTUM, for which two additional beams were commercialized for incremental capacity in maritime mobility during the first half bringing the total number of beams commercialized for mobile connectivity to three. Second quarter revenues stood at 30 million, up 33.8% year-on-year and by 13.3%, quarter-on-quarter, reflecting the timing of the commercialization of the third theme of EUTELSAT QUANTUM for maritime mobility. This very positive dynamic is expected translate into double-digit growth for the full year, albeit at a much slower pace compared to the first half as the comparison basis will gradually reflect some of the above-mentioned as well as other incremental contracts.
So after the five segments, we'll turn to the backlog and fill rate. The backlog stood at 3.7 billion in December 2022 versus 4.2 billion a year earlier and 4.0 billion in end June 22. The natural erosion of the backlog in the first half more than offset the contribution of the wholesale contract with Swisscom and EUTELSAT KONNECT, as well as new beams commercialized on EUTELSAT QUANTUM. The backlog is equivalent to 3.2 times 2021, 2022 revenues and Broadcast represents 59 of the total versus 64 a year ago. The backlog profile is progressively reflecting the rebalancing of our operations towards connectivity with less longer-term contracts. Please also note that the backup does not include managed services yet, but we are looking into a methodology that will better reflect these services also in the backlog.
The number of operational transponders by the end of December 2022 stood at 1359 broadly stable year-on-year compared to end June 2022 will no end of service of any regular capacity or end of stable orbit life of any satellite over the last 12 months. The number of utilized transponders stood at 955, down 19 units year-on-year and down by 21 units compared to end June; the data reflecting notably the return of capacity by Digiturk starting mid-November. As a result, the fill rate stood at 70.2 compared to 70.6 a year later, and 73.2 at end June.
Now, I'll hand over to Christophe for a bit more in the financial performance.
Thanks Eva. Hello, everybody. Happy to be here with all of you. I will start with the EBITDA, which stood at 419 million Euros at the end of December 22 compared to 436 million Euros last year, down by 3.8%. The EBITDA margin stood at 72.9% at constant currency, that is to say 73% on a reported basis, versus 76.1% in H122. This is on the back of lower revenues, mainly in the broadcast vertical.
Operating costs were 18 million Euros higher than last year, reflecting, first, higher bad debt; second, increased staff costs due to changing mix our revenue and to a lower extent salary inflation; and third, the cost incurred by transactions with Russia. The EBITDA margin is reflective of the progressive rebalancing of our business towards connectivity applications.
Turning to the P&L, group's share of net income stood at 52 million versus 163 million a year earlier, down by 68.2% and representing a margin of 9%. This reflected on the positive side lower depreciation of 234 million versus 243 million in H122, which was due to lower in orbit as well as on ground depreciation. On the negative side was reflected other operating expenses of minus 34 million Euros compared to an income of 84 million last year, which mainly included the $125 million payment of the phase one of C band proceeds; a negative financial results of 56 million Euros versus 35 million last year, reflecting an unfavorable evolution of foreign exchange gains and losses; and lastly, negative net income from associates are 39 million Euros related the full semester contribution of the stake in OneWeb, which last year was only from September 21 onwards.
The effective tax rate was 1% versus 24%. Last year, the decrease was mainly due to a lower French tax rate, as well as a more favorable impact of this specific French satellite tax regime. Last year's tax rate was also inflated by the 30% taxation of the $125 million payment related to the Phase One of C band proceeds.
Moving now to cash; net cash flow from operations amounted to 353 million Euros, down by 10 million, reflecting the lower EBITDA partially compensated by lower working capital requirement needs, thanks to strong cash collection this semester. Cash CapEx amounted to 194 million Euros, 96 million higher than last year. It reflected the phasing of satellite program delivery and launch with four satellites launched this semester and this is not representative of the expected full year figure.
Interest and other fees paid amounted to 77 million Euros versus 70 million Euros last year. The slight increase mostly reflects capitalized interest from the credit facility drawn down for the financing of satellite programs. As a result, discretionary free cash flow amounted to 82 million years on a reported basis, down 113 million Euros compared to last year. We just did discretionary free cash flow as per our financial objective, that is excluding ForEx hedging on one-offs, stood at 121 million Euros, also down 111 million year-on-year.
Turning to the next slide. At the end of December 2022, net debt ended at 2996 million Euros, up 182 million versus end of June. It reflected the lower discretionary free cash flow of 82 million generated in the first half, the lower dividend payment of 81 million following the payment of part of the dividend in shares and there was a scrape option, the outflow regarding inorganic investment of 34 million Euros for OneWeb, and other items, which contributed to the increase in net debt for a net impact of 149 million. This reflects mostly the use of a debt related finance lease for the financing of satellites programs, which amounted to 200 million Euros.
As a result, and as you can see on slide 22, the net debt to EBITDA ratio ended at 3.55 times compared to 3.53 times at the end of December 2021 and 3.27 times at the end of June 2022. As a reminder, December represents a big in the annual average profile, reflecting the timing of the dividend payments. It was also impacted in H1 fiscal year 2023 by the seizing on investments. The average cost of debt after hedging stood at 2.67% versus 2.5% in H122. The weighted average debt maturity stood at 4.1 years compared to 4.5 years at the end of December 2021. And last but not least, liquidity remains strong with undrawn credit lines and cash around 1.3 billion.
And with that, I will now hand it over to Eva to present the outlook.
Thank you, Christophe. We made strong progress on the telecom pivot with most of the elements of the strategy now in place. It will help rebalance our business towards connectivity where demand is booming. More specifically, we reorganized the company along two business units, video and connectivity, to better capture market opportunities. We now rely on an innovative end-to-end platform to deliver our services to customers as we successfully launched Eutelsat Advance. As we saw before, we brought substantial growth capacity, with high level of pre-commitments. We've now access to OneWeb capabilities providing a unique combination of GEO and LEO to expand the addressable market. And finally, in numbers, the contribution of our connectivity revenue now represents 30% of total operating verticals revenues, versus 25%, four years ago.
As a reminder, three satellites bring incremental growth have already been launched, and two others would enter into service in the coming years. We talked about the four ones we already launched. And on top of that, we have Eutelsat 36D, predominantly a replacement satellite for broadcast, but it also carries an incremental UHF payload operated by Airbus, and then the [inaudible] for the Americas will bring more than 100 gigabits of incremental capacity over the Americas to support the growing connectivity market.
On the back of all of this, we confirm our financial outlook. We expect to generate operating revenues between 1.135 million to 1.165 million for the current fiscal year, based on a Euro-Dollar rate of one. Revenues expected to return to growth from next financial year 2024 on the back of this incremental capacity already launched. Elsewhere cash CapEx will not exceed 400 million per year for each of the next two fiscal years. And we also confirm our discretionary cash flow objective with an average of 420 million per year for the next two fiscal years. Finally, we confirm our leverage targets.
A quick update on the progress of accreditation in OneWeb since the October strategic update, and the company has made a lot of positive progress and is well on track to deliver its objectives. On the fleet side, now 16 launches have been completed with 85% of the satellites now in orbit. OneWeb is currently providing coverage at 50 degrees northern latitude and is well on track for the 33 degree North latitudes by May of this year. That will give you coverage of most of Europe and the United States. Two more launches are planned for end of February start March and with that they'll have reached full coverage, which will be operational by January 2024.
In terms of business, OneWeb continues to see a very positive commercial momentum with a secured backlog of nine -- now 800 million at the end of December 2022, up 200 million from October strategic update. Revenue is on track to reach the 50 million in our financial year that ends June 2023. E-contracts have been won and partnerships have been signed in some of the key verticals, where demand is well oriented namely Airtel in Africa for cellular backhaul and Galaxy in Canada for community broadband.
In terms of the transaction, where we combine OneWeb and Eutelsat, regulatory approval, work stream is progressing according to plan, with no EU referral considered, France and US procedures still ongoing. The remainder is fairly -- is pretty much close, so mainly France and US are still ongoing. Closing the transaction is expected to be in Q2 or Q3 this year, condition upon the customary regulatory approval, the Eutelsat extraordinary general assembly approval, and of course approval from the French stock market authorities on the perspective.
This concludes our presentation. Thank you for your attention, and we'll be happy to answer your questions.
[Operator Instructions] We will take our first questions from Roshan Ranjit. Your line is open. Please go ahead.
Oh, great. Morning, everyone. Thank you for the questions and presentation. I’ve got three questions, please. You have highlighted a pickup in bad debt. Can you give us a bit more detail here, is that isolated to the known, I guess, headwinds in from Russia and Iran or is that at a bit more wider level, and also which segment is that coming from please?
I guess maybe coupled on to that to your highlight in margin dilution, we've clearly seen an increase in exposure to mobile connectivity. Can you maybe give us a split of the kind of initial margin that you are able to book from connectivity customers versus the typical broadcast customers? And is there anything going on between a kind of retail or wholesale mix within that as well?
Second question. You highlighted another beam could be sold in the coming quarters, again, is that within mobility? Are you seen any interest from any other end segments? And finally, just on OneWeb, can we get a sense of the type of discussions that were going on at the regulatory level you? You said that there's no EU referral. What kind of made them happy? Any feedback you've got on the French and US side and just thoughts into any update on generation two on OneWeb please? Thank you very much.
Sorry, if I will -- sorry four questions. Let's Christophe answer the question on bad debt and then I'll take -- I'll probably take the other three ones, because I think they're great questions. So let's start with your first question on bad debt.
So related to the hiccups on the bad debts, it's, as you said, it's mostly related to -- not to the Russian customer, actually, but it is related to the sanctions with Iran, for which we had to book depreciation. We also had a slight hiccup in with Middle East customers and this is the main reasons. But coming back to your point, I would say, it's mostly focused on the impact of the sanctions.
So, most of the bad debts from the Iranians, who will now close down entirely. Coming back to your question on the impact on the margins of conductivity, it's clear that right now we have two effects in our conductivity business, both the rapid built of a service business in with Eutelsat Advance, which is yet not mature, so not at what you call maturity margins. And you probably you will also have in here, the reselling of OneWeb, which is also has some effect on margins, given that today it is a resale agreement, of course, not at the same margins of this. So, we do see some margin dilution from the connectivity but mainly related to the rapid growth in the market and the built up of a service offering in that market.
On the QUANTUM beam, I'd say the two segments that are -- that the QUANTUM satellite is targeted about is government and mobility. And I think the last beam is also expected, rather shortly, actually, likely in the government segment. But in any case, we have a strong demand for the satellite, which you've seen, with actually additional demand coming out of the mobility segment, which could be a good backup, but we are fairly confident that we have the last beam in test right now with the customer.
On the OneWeb, on the regulatory approval, the two outstanding one is simply because of the time span and the number of question rounds that are fairly typical, so it's nothing out of the ordinary, either with the French authorities nor with the US FCC Team Telecom. We've seen a referral to Team Telecom, which I think we announced back in Q4, which is totally normal procedure in the FCC in terms of approval, and that just typically takes up to half a year. So we are in the round two questions back and forth, which we hope coming towards an end, which is why we estimate that we'll be able to have closure in this in Q2 or Q3. I think we haven't had any questions on a regulatory level that we're not perfectly normal. We don't have a lot of overlap between the OneWeb’s market today and Eutelsat. We're in different orbits and we don't have competing capacities but of course there is a need to fully understand the satellite market given that especially the constellation market is fairly new to regulators.
Could we take the next question? Hey, there's no more --
We will take the next questions from Sami Kassab. Your line is open. Please go ahead.
Thank you and good morning, Eva, and [Foreign Language] Christophe. I have my usual three questions as well, please. The first one fixed broadband is up 17% in H1, but it's guided to be broadly stable for the full year. Does that suggest that H2 will see decline in revenues and, if so, can you remind me what's driving the decline in H2?
Secondly, can you please comment on the latest development with regards to the US satellite communications project? What do you see as the key milestones ahead for this project to go ahead? And lastly, QUANTUM was -- if my memory serves me right, QUANTUM was initially presented as a satellite for the government service market where prices usually are higher than in the mobility sector but you seem to have repositioned the commercial approach towards mobility. May I ask why that or may I say whether you still expect QUANTUM to generate around 35 million euro of annual revenue at capacity? Thank you, Eva.
Yep. I think, on your -- let me just start with the last one on the QUANTUM here. Yes, you're right that in the beginning, we kind of targeted because of the high level of security, and also flexibility on the QUANTUM satellite in terms of operating the beams for the government market and we also had seen some beams sold to the government market here. But what we've seen is it's been a very interesting segment in the maritime mobility, which actually wanted to pay the same kind of prices, so we don't see necessarily a price decline in that satellite with the current commercialization. But it does split differently into two segments, so we have three of the beams in the mobility segment where we probably expected most of it to be in the government segment, so you're right on that one. But it's not that we see a deterioration of the pricing picture on QUANTUM right now, it is quite unique capacity in the market as we currently stand.
Latest development on IRIS2 is you probably saw the news last week on the approval of the IRIS2 EU space project. And nothing in general, we are super supportive of EU actually getting involved in the space. Everything is an area of European serenity, which is where it is a very welcome development that EU wants to become a player in it and we’re, of course, following very closely the developments around the tender. Right now we expect to see the invitation to tender the ITC mid-March, after the approval just last week, so a fairly rapid and ambitious timeline. So mid March, we will know exactly what the EU is thinking, what are the criteria linked to both eligibility to tender, but also of course what's actually the content of the RFP.
In the meanwhile, we're working on several fronts, we're working on what's the right consortium, what's the right partnerships we need to. I doubt anybody would want to bid this as a single standalone company. It's very likely that we'll be in a partnership, in a consortium with other players, and it is right combination. Those are a lot of the discussions going on left, right and center in the European space industry. And of course, we’re also preparing eventual eligibility criteria, especially after the combination with OneWeb. We just want to make sure that Eutelsat continues to be eligible and a highly relevant partner for the IRIS2 project.
And for your decline versus a 17% increase, yes, we do actually expect to see a decline in second half, mainly linked to some of the timing and phasing of KONNECT in that market before we see the entry into service in September of the KONNECT VHTS, some of the contracts has been structured that way that we do start to see a small decline in the next half year, coming in then with a strong growth once we start commercializing KONNECT VHTS next year. I hope that covers your three questions. Thanks for the questions. Yeah, go ahead.
Can I quick follow up -- the line broke down partly when you answered the QUANTUM question. Did you reiterate the 35-ish million Euro of annual revenues? Implicitly, I would imagine, you have that prices are the same but I did not understand or did not hear the answer to that part of the question, please.
Yeah, no, I don't think we have any significant price erosion compared to what we expected on this one, so yes.
Thank you. And on the IRIS2, is a way whereby the European Union decides to reinvent the wheel and to support the launching and manufacturing industry rather than the satellite operators or is that out of the table and you think the most likely scenario is for satellite operators to be involved?
I think satellite operators are all very interested to be involved, for sure and we certainly hope to be part of consortiums where you also see satellite operators. But I think your guess is as good as mine in terms of what the Europe will be coming out with next week. We're all looking very interested. There's lots of rumors flying around but I certainly hope that they'll think about involving also European operators. Both Spain, Italy, Luxembourg and France have strong operators and we certainly hope to be a part of this super interesting venture as well.
Fantastic. Many thanks for your answers. Thank you very much, Eva.
We will take our next questions from Carl Murdock-Smith. Your line is open, please go ahead.
Good morning. Thanks very much. Two questions from me. The first one I'm actually stealing from Roshan because I don't think you actually commented on it. And just an update on your thoughts around OneWeb Gen 2 around kind of funding and timing of that. So any commentary on that would be very interesting.
And then secondly, just on government services, again, today's numbers have missed consensus and the decline there is still quite aggressive. Just wondering, in terms of your view of kind of when will we reach bottom on government services revenues in terms of the kind of USDA or political context? And how much more is there still to kind of come out there and what are your early expectations as we go into the spring renewal period? Thank you.
Yep. Good question. Thank you for keeping me honest on getting to answer all your questions. So I will start with a Gen 2, which I did forget. So on Gen 2, it is, as you know, as we are already shareholders in OneWeb, we do actually follow the reflection on Gen 2 quite closely, as shareholders, and it is moving forward nicely. We will likely need a Gen 2 in 2027, 2028 when the current gen one will start needing renewal on the orbital positions. We do have a replacement for the first couple of orbital plans of Gen 1 in order to bring the lifespan to 2027, 2028. And you can say oh, that's a long time but it's actually not that long time out, so it does mean we'll have to probably put out an RFP, Q2 is most likely this year, and hopefully get industry responses back in Q3, Q4, this year, in order to have a good full picture.
As you know, we've been guiding a Gen 2 around the 4 billion mark and we're still fairly convinced that that's going to be feasible given the synergist that is with a lot of the infrastructure already in place for Gen 1, but also, of course, the way we are conceiving the Gen 2, so we're still fairly comfortable with that envelope.
Timing on when that spending will start, I think next fiscal year, we'll start seeing a little bit, but that's kind of early design elements and we will of course see in our next fiscal year, probably also the choice of the suppliers in the Gen 2. But I think the big spendings will be in the years after and of course around the launches, which will happen, you know, 2025, 2026, in those years that will be kind of more significant amounts of the Gen 2 spending that will be needed in those years. Of course, we can't exactly say when the different things will fall before we actually have the responses coming back and the exact timeline. And as you know, it's also an industry where we often have a use of vendor financing that can smoothen out a little bit some of the CapEx spent. So all of that I think will be probably much more clear into the start of our next financial year.
On the government services, you're right. It's been two consecutive, quite poor renewal campaigns. We do think we start being out of the kind of ramped down on a capacities from Afghanistan and some of those areas, and we certainly do see we'll see some more stability and not the same amount of negative development over the next couple of couple of renewal campaigns. Of course, some of our expectations previously had been related to that we expected QUANTUM to fall entirely within the government segment as some of the previous questions also pointed to and given that they now count in the mobility segment rather than the government segment, that also accentuates a little bit the decline compared to our expectations.
That’s great. Thanks very much.
Thanks.
We have a written question from Tom Singlehurst from Citi. Can you give a bit more color on the price versus volume trends within Broadcast and how this will evolve going into 2024? Should we be assuming mid-to-single digit declines into the outer years?
Good question. Tom. Thanks for that. I do think we see -- what we see right now, what hurting us most is the two kind of what are called volume declines from respectively the non-renewal of an outside capacity and then the Digiturk, which are clearly volume related. Prices are holding up fairly well. So, it's more the kind of volume decrease where certain customers reduce the amount of volume they need rather than a price pressure. And as you might imagine, we also working on a lot of elements that will protect your pricing in terms of a better quality of service and so forth. So it's more volume game right now. And yeah, I think mid to single -- mid-single digit decline is probably the likely outlook also in the outer years in this video broadcast market. It is an underlying structural trend in that order of magnitude.
Could we take the next either written or direct question? Are we out of have questions or any anybody is sitting with a question they are burning to put forward or should we maybe wrap this up for now. I just give you kind of 5, 10 seconds to shout loudly or punch one or whatever you need to do. It doesn't sound that way. In that case, I just want to thank you all for getting up this morning and listening to us. I think if there are any other questions, our IR Thomas is there standing by, so if you come up with a question during the morning after your coffee that you are burning to put forward, just get back to us and other than that, have a marvelous Friday and a great weekend when you get around to it. Thank you for listening.
This concludes today's call. Thank you for your participation. You may now disconnect.