- Review of strategic priorities and
financial objectives in the context of evolving market
dynamics
- Maximizing cash-flow of our core
businesses
- Return to broad top-line stability
in FY 2017-181
- Maintain EBITDA margin above
75%
- Capital expenditure reduced by €80m
on average to €420m pa
- Reduced cost of debt
- Discretionary free cash
flow2 CAGR>10% from FY 2015-16 to FY
2018-19
- Stable to progressive
dividend
- Returning to growth by building on
our core Video business and capturing longer term potential in
Connectivity
Regulatory News:
In a context of slowing industry-wide momentum, Eutelsat
Communications (Paris:ETL) (ISIN: FR0010221234 - Euronext Paris:
ETL) is announcing a review of its strategic priorities and
financial objectives.
Rodolphe Belmer, Chief Executive Officer commented: “It has
become clear in recent months that the traditional businesses
within the Fixed Satellite Services sector are facing a context of
slowing industry-wide momentum. To face this lower growth
environment, we are implementing an adaptation of our strategic
priorities and financial objectives. Our immediate priority will be
to maximize the free-cash-flow generation of our core businesses.
We are confident in our ability to generate a level of
discretionary free cash flow in the next three years, which will
enable us to serve a stable to progressive dividend and reduce
leverage, in line with our commitment to our investment grade
rating. We will continue to invest selectively to prepare for a
return to growth by building on our core Video business and
capturing the longer term opportunities in Connectivity. Our
objective is to return to broad top line stability as early as FY
2017-18.”
ADAPTING STRATEGY TO EVOLVING MARKET
DYNAMICS
In recent months it has become clear that the traditional
businesses within the Fixed Satellite Services sector are facing
slowing industry-wide momentum, reflecting broadly stable demand in
developed markets (Europe), and economic headwinds in economies
such as Russia and Latin America, only partly offset by more robust
demand in Sub-Saharan Africa, the Middle-East and North Africa and
Asia. Competition continues to intensify in the Data Services
segment, where we anticipate ongoing downward pricing pressure.
Against this backdrop, Eutelsat has undertaken a review of its
strategic priorities and financial objectives, leading to the
adoption of a two-step strategy, based around the following
priorities:
- Step one: Immediately implement
measures to maximize free-cash-flow generation of our core
businesses (Video, Data and Government Services);
- Step two: At the same time
prepare for a return to growth by building on our core Video
business and capturing the longer-term potential in
Connectivity.
STEP ONE: maximize free-cash-flow generation of our core
businesses
Eutelsat’s focus in the immediate term will be to maximize the
free cash flow generation of its existing businesses in order to
secure ongoing deleveraging in line with its commitment to its
Investment Grade rating, deliver stable to progressive dividend to
shareholders and finance targeted investments to pave the way for a
return to growth.
CAPEX Reduction
Capex savings will be achieved without impacting the current
deployment plan and attendant future revenues. Savings will be
driven by the implementation of a ‘design to cost’ approach, a
focus on hosted payload and partnership or “condosats”
opportunities when appropriate, as well as capitalization on
industry-wide efficiency improvements. Ground capex will be placed
under strict control.
In consequence, estimated average annual cash capex for the
period July 2016 to June 2019 will be reduced to €420 million
(versus an average of €500 million previously for the period July
2015 to June 2018).
Cost of debt optimization
The €500 million bond issue at a 1.125% coupon in June 2016 to
refinance, along with cash in the balance sheet, the €850 million
March 2017 bond, will lead to savings of c.€30 million per annum.
Elsewhere, a swap-lock has been negotiated in anticipation of the
January 2019 €800 million bond maturity, while the Eutelsat
Communications term loan has been extended for 12 months to 2021.
Cumulated annual savings from January 2019 are anticipated in the
region of €50million.
OPEX containment
Operating cost containment measures are under consideration,
notably procurement and SG&A expenses, with a view to
underpinning our EBITDA margin above a level of 75%.
Optimize asset portfolio
Eutelsat will continue to consider opportunities to streamline
its portfolio of assets, following on from the divestment of
Alterna’TV in April 2016. At the same time it will seek
partnerships for some of its broadband projects, such as ViaSat in
Europe and Inframed in Africa.
Streamlining the organization
Eutelsat’s organization is being realigned along the following
five business lines: Core businesses (Video, Data and Government
services) and Connectivity (Fixed Broadband and Mobile
Connectivity). Measures will be implemented to further strengthen
the quality of the salesforce, while the metrics on which key
personnel are measured will be aligned to our cash flow generation
targets.
Within this framework, Eutelsat is adapting the strategies
within its three core businesses (Video, Data and Government
services) in order to optimize revenues based on its assumptions
for their current and future operating contexts.
Video
Demand in the Video segment should rise modestly over the next
five years. It should see continued growth in emerging markets, in
particular MENA and Sub-Saharan Africa where Eutelsat has a strong
footprint, notably driven by increasing channel count. The trend in
Europe is expected to be broadly stable with HD and Ultra HD
ramp-up broadly offsetting improving encoding and compression
techniques.
Against this backdrop, Eutelsat’s strategy in developed markets
will be to optimize value, notably by increasing direct access to
customers by integrating or reorganizing indirect distribution,
stimulating HD and Ultra HD take-up and implementing more segmented
pricing strategies.
At the same time Eutelsat will continue to capture growth in
emerging markets, benefiting from recent investments at the
7/8°West and 36°East positions, and investing selectively notably
at 7°East.
Data Services
Global demand in volume for Data Services will continue to grow,
driven by increasing connectivity needs. However, this segment will
remain structurally challenged, with the arrival of new
technologies, particularly large HTS systems compounding an already
oversupplied market and leading to increasing pricing pressure.
Certain verticals, notably point-to multipoint applications, which
currently represent more than half of Eutelsat’s Data Services
revenues, should be more resilient in the short- to
medium-term.
Eutelsat will partly offset the impact of lower pricing with a
series of measures including prioritizing the ramp-up of existing
capacity by adapting its pricing strategies where appropriate,
focusing on less competitive geographies, complex networks and less
price-sensitive customers, pursuing opportunities in verticals
where satellite has untapped potential and leveraging on a
differentiated offer (EUTELSAT QUANTUM).
Government Services
Demand by the US Government appears to be stabilizing, albeit at
prices well below the previous cycle. Eutelsat will seek to develop
new sub-segments. The arrival of EUTELSAT QUANTUM in 2019 will
enable us to develop a differentiated value proposition.
More generally, Government Services, like Data, will be impacted
by the arrival of HTS, although it is expected to be slower to
migrate. On the other hand development opportunities exist in
regions such as Europe, Asia and MENA, as well as in non-military
verticals.
These measures will underpin our objective of broadly stable
revenues in FY 2017-18 and a return to modest growth in FY
2018-19.
STEP TWO: Returning to growth by building on our core Video
business and capturing the longer-term potential in
Connectivity
Eutelsat will return to growth with two horizons: in the medium
term (from FY 2018-19 onwards) by building on our core Video
business to accelerate growth, and in the longer term by preparing
to capture the opportunity in Fixed Broadband and Mobile
Connectivity (from FY 2020-21 onwards).
Video
Video by satellite will continue to grow and our expectation is
that in the longer term, video distribution will be globally mostly
split between satellite and IPTV.
Additional sources of demand will be created as broadcasters
increase the level of outsourced services. In this context, deeper
integration within the IP ecosystem and harnessing existing
IP-based technologies will enable satellites to enhance the
end-viewer experience, further increasing customer adhesion and
generating opportunities to sell additional services for
broadcasters, Pay-TV operators and advertisers.
Fixed Broadband
The potential of Fixed Broadband by satellite is significant,
underpinned by poor infrastructure in emerging markets and in
certain developed markets, and the cost-competitiveness of
satellite versus terrestrial technologies in low-density areas. The
challenge for the satellite industry will be to deliver a
fiber-like service both in terms of quality and price. This will be
achieved with the advent of VHTS (Very High Throughput) satellites
at the beginning of the next decade.
In the meantime, Eutelsat will pave the way for mass-market
adoption, by rolling-out different commercial models on its
existing and committed capacity (KA-SAT and the Russian and African
broadband projects), and working with industrial partners to reduce
cost of terminals, in order to determine an appropriate level of
investment from 2018 onwards.
Mobile Connectivity
In the next 10 years, Mobility has the potential to evolve from
a niche to a mass-market, driven by an increasing number of
connected devices, the take-up of more bandwidth-hungry usages
leading to exponential rise in data consumption per user and the
extension in the longer term of mobility from aero and maritime to
land and connected cars.
Eutelsat will adopt a step-by-step approach, leveraging its
existing strong positions at 172° East and 10° East, and developing
aero mobility on KA-SAT. We will focus on securing the
prerequisites for mass-market distribution, notably via selective
investments to ensure we have the appropriate capacity and seeking
partnership deals with all stakeholders.
FINANCIAL OUTLOOK
Based on a continuation of trends observed in the Third Quarter,
notably a deteriorated economic context in several emerging
markets, in particular Latin America, where much of the recently
launched capacity has been targeted and intensifying competitive
pressure for Data Applications in all geographies, we confirm that
Full Year 2015-16 Revenues3 will be flat, with an EBITDA margin
around 76%.
Full Year 2016-17 will remain impacted by these headwinds, and
will also reflect the impact of lower renewals in Government
Services as well as a €25-30 million decline in revenues at the HOT
BIRD position, notably due to the proactive rationalization by
Eutelsat of contractual arrangements with several distributors. In
consequence, revenues are expected in the region of -3% to -1%,
with an EBITDA margin above 75%.
In FY 2017-18, while data revenues will be under pressure, this
should be offset by modest growth in Video and growth in Broadband
and Mobility on the back of the capacity on EUTELSAT 36C, Amos 6
(Broadband for Africa) and EUTELSAT 172B. Our objective therefore
is to return to broadly stable revenues, with an EBITDA margin
above 75%. In FY 2018-19, we expect to deliver modest growth, also
with an EBITDA margin above 75%.
Capital expenditure will be reduced from an average of €500
million per annum for the period July 2015 to June 2018 to an
average of €420 million4 per annum for the period July 2016 to June
2019.
Discretionary Free Cash Flow5 is expected to see CAGR in excess
of 10% over the same three year period. On this basis, we remain
committed to reducing our net debt to below 3.3X EBITDA and to our
investment grade rating.
At the same time, we will adopt a stable to progressive dividend
policy (versus a payout ratio in the range of 65-75% of net
income).
Details for conference call
Eutelsat Communications will hold a presentation of this
strategic update on Monday, 27 June 2016 at its headquarters, 70,
rue Balard, 75015 Paris, starting at 9:00 CET.
To connect to the conference call, please use the following
numbers:
- France: +33(0)1 76 77 22 26
- UK: +44(0)20 3427 1909
Access code: 1874699#
A live presentation will be also available by webcast via the
following link:https://pgi.webcasts.com/starthere.jsp?ei=1108260You
can test your system via this link:
https://event.webcasts.com/test
Instant replay will be available from 27th June, 03:00pm CET to
28th July, midnight
- France: +33(0)1 74 20 28 00
- UK: +44(0)20 3427 0598
Access code: 1874699#
Financial calendar
The financial calendar below is provided for information
purposes only. It is subject to change and will be regularly
updated.
- 29 July 2016: Full-Year 2015-16 results.
About Eutelsat Communications:
Established in 1977, Eutelsat Communications (Euronext Paris:
ETL, ISIN code: FR0010221234) is one of the world's leading and
most experienced operators of communications satellites. The
company provides capacity on 39 satellites to clients that include
broadcasters and broadcasting associations, pay-TV operators,
video, data and Internet service providers, enterprises and
government agencies.
Eutelsat's satellites provide ubiquitous coverage of Europe, the
Middle East, Africa, Asia-Pacific and the Americas, enabling video,
data, broadband and government communications to be established
irrespective of a user's location.
Headquartered in Paris, with offices and teleports around the
globe, Eutelsat represents a workforce of 1,000 men and women from
37 countries who are experts in their fields and work with clients
to deliver the highest quality of service.
For more about Eutelsat please visit www.eutelsat.com
______________________________________________________________________________________________
Disclaimer
The forward-looking statements included herein are for
illustrative purposes only and are based on management’s current
views and assumptions. Such forward-looking statements involve
known and unknown risks. For illustrative purposes only, such risks
include but are not limited to: postponement of any ground or
in-orbit investments and launches including but not limited to
delays of future launches of satellites; impact of financial crisis
on customers and suppliers; trends in Fixed Satellite Services
markets; development of Digital Terrestrial Television and High
Definition television; development of satellite broadband services;
Eutelsat Communications’ ability to develop and market Value-Added
Services and meet market demand; the effects of competing
technologies developed and expected intense competition generally
in its main markets; profitability of its expansion strategy;
partial or total loss of a satellite at launch or in-orbit; supply
conditions of satellites and launch systems; satellite or
third-party launch failures affecting launch schedules of future
satellites; litigation; ability to establish and maintain strategic
relationships in its major businesses; and the effect of future
acquisitions and investments.
Eutelsat Communications expressly disclaims any obligation or
undertaking to update or revise any projections, forecasts or
estimates contained in this presentation to reflect any change in
events, conditions, assumptions or circumstances on which any such
statements are based, unless so required by applicable law.
1 At constant currency and perimeter and excluding non-recurring
revenues.2 Net cash-flow from operating activities – Cash Capex -
Interest and Other fees paid net of interests received3 At constant
currency and perimeter and excluding non-recurring revenues.4 This
includes capital expenditures and payments under existing export
credit facilities and under long-term lease agreements on third
party capacity.5 Net cash-flow from operating activities – Cash
Capex - Interest and Other fees paid net of interests received
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160626005071/en/
Eutelsat CommunicationsPress
RelationsVanessa O’Connor, + 33 1 53 98 37
91voconnor@eutelsat.comorMarie-Sophie Ecuer, + 33 1 53 98 37
91mecuer@eutelsat.comorInvestor
RelationsorJoanna Darlington, + 33 1 53 98 31
07jdarlington@eutelsat.comorCédric Pugni, + 33 1 53 98 31
54cpugni@eutelsat.com
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