Eutelsat Communications

Good day and welcome this conference call and webcast held by UTILSAT. Today's conference is being recorded. At this time, I would like to turn the conference over to Eva Bernicke, CEO. Madam, please go ahead. Good morning.

Welcome everyone and thank you for joining us on this historic occasion where we'll present our project to combine OneWeb and UTILSAT. I'm Eva Bernicke, CEO of UTILSAT and I'm joined by Neil Masterson, CEO OneWeb, as well as, on my side, the UTILSAT team with Michel Acibert, Deputy CEO, and Sandrine Theran, our CFO. Before we actually start discussing in detail the combination of UTILSAT and OneWeb, we want to give you a quick rundown of UTILSAT's financial year 22 results, which has just been finalized by the end of June. and which are also published today. The full earnings presentation with the usual level of quite a lot of detail is available on our website. In order for you not to be listening to me the whole time, I propose for Sandrine to take us through the UTLSAT 22 results. Over to you, Sandrine.

Thank you, Eva, and good morning, everyone. We delivered a robust performance in fiscal year 21-22, with revenues slightly above the midpoint of our guidance range, a stable industry-leading profitability, and a continued strong free cash flow generation, which is well above our range of objectives. In detail, revenues for the five operating verticals stood at 1,148,000,000 on a reported basis, and 1,121,000,000 at the 1.20 euro dollar rate on which our objectives were based. This represents a 3.8% decline on a like-for-like basis and sits slightly above the midpoint of our expected range of 1,110,000,000 euros and 1,130,000,000 euros. In spite of this decline, we delivered an industry-leading level of profitability with a 75% EBITDA margin stable year-on-year. Cash capex amounted to 280 million euros. It is lower than last year which was characterized by anticipated leases and ECA repayments and well within our 400 million envelopes. Discretionary free cash flows to that 443 million euros on a reported basis On an adjusted basis, as per financial objectives definition, which are notably based on a 1.20 euro dollar rate, it stood at 460 million euros, well above the range of objectives of 400 to 430 million euros. Our net debt to EBITDA ratios to that 3.27 times versus 2.88 times last year, an increase which reflected our investment in OneWeb. We remain comfortable compared to our medium-term objectives of around three times, considering that we still expect to receive the Phase 2 of CBAN proceeds, which represent $382 million pre-tax. and our recommended dividend per share of €0.93 stable compared to last year. In the context of the transaction announced today, a script option will be proposed to shareholders. With a robust backlog, An industry-leading profitability and a proven ability to generate high levels of free cash flow, UTELSAT is in a strong position to face the challenges of fiscal year 2022-2023, which is expected to be the last year of transition before a return to growth from fiscal year 2023-2024, driven by new in-orbit resources. Broadcast revenues trend is expected to materially improve in fiscal year 2022-23 relative to fiscal year 2021-22, standing at minus 6.9%. Nevertheless, while the impact of the Nilesat headwind will wash out from mid-October 2022, revenues will be negatively affected by the anticipated non-renewal of the capacity contract with DigiTurk, leading to an overall mid-single-digit decline for this application. Data and professional video revenue trend in 23 will remain largely in keeping with the mid-single-digit decline trend reported in fiscal year 22, minus 4.2%. Government services revenue will reflect, on one hand, the ramp-up of UTELSAT quantum, and on the other, the carry-forward effect of fiscal year 22 below-average renewals. The outturn of the fiscal year will also remain dependent on the outcome of future renewals. fixed broadband and mobility will keep growing in fiscal year 23, although at a slower pace compared to the massive double-digit growth recorded in fiscal year 22, respectively plus 36% and plus 15% ahead of the arrival of incremental capacity. Taking these elements into account, we expect to generate revenues from the five operating verticals of between 1 billion and 150 million euros and 1 billion and 180 million euros in fiscal year 23 based on a euro-dollar rate of 1.00. This represents a minus 4% like-for-like decline at midpoint versus fiscal year 22 in keeping with the trend of fiscal year 22. Thanks to the new capacity, including notably the firm pre-commitment secured on UTELSAT Connect VHTS and UTELSAT 10B, revenues are expected to resume growth from fiscal year 24. Cash capex will not exceed 400 million per annum for each of the two fiscal years, fiscal year 23 and fiscal year 24. we will continue to leverage all measures to maximize cash generation with an objective of adjusted discretionary free cash flow expected at an annual average of 420 million euros at a euro-dollar rate of 1 for fiscal year 23 and fiscal year 24. This is equivalent to a cumulative adjusted discretionary free cash flow generation of 1,361,000,000 euros over three fiscal years, fiscal year 22, fiscal year 23, and fiscal year 24, at a euro rate of one. Or put differently, at an average annual free cash flow over the three years exceeding 450 million euros. We remain committed to a sound financial structure and continue to target a medium-term net debt to EBITDA ratio of around three times on a standalone basis. As far as dividend is concerned, a €0.93 per share dividend will be proposed to the upcoming AGM with a script option. Now, ending over to Eva.

Thank you, Sandrine, for these very fast headlines from UTELSAT's 22 financial results. As you can see, they are strong and in line with expected, including a dividend with a script option. Normally, we'd be spending a lot of time going into details of these results and you'd have lots of great questions to drill in, but we actually want to shift gears and spend a lot of the rest of the time on this new combination where OneWeb and UTILSAT join forces. First, a few words on the highlights of the transaction. And then I'll also introduce you to Neil Masterson, the CEO of OneWeb, who is joining us for this part. It truly represents a transformation for our company, creating a platform for strong growth for the next decade to come for the combined entity. And it presents a unique first integrated Leo-Geo player. The operation is based on a full share combination of OneWeb and UTELSAT leading to a 50-50 ownership of the combined entity. It's a natural next step following the acquisition of a minority stake in OneWeb by UTELSAT in 21, as well as the global distribution partnership that we signed in March 22, and today's extensive new commercial agreement. The deal is in line with our long-held commitment to continue to support OneWeb and step up when the occasion is right. The occasion is right now. The new entity will be uniquely positioned to address the fast-growing connectivity market, which is estimated at around 16 billion by 2030, addressing multiple verticals with a lot of public and private needs. And moreover, The technology revolution of GEO-HTS satellites and LEO constellations is expected to drive disruptive changes, paving the way for next generation solutions. The combined entity is poised to create strong strategic value with around 1.5 billion potential incremental value creation from a combination of revenue, capex, and cost synergies, and double-digit revenue and EBITDA growth for the next 10 years. The new entity will be financially solid, with UTELSAT's strong cash flow generation providing visibility and funding to develop OneWeb's high return next generation of satellites. In terms of governance, this operation has the full approval of all strategic shareholders of both entities, notably BPI France and FSP, who is committed to vote in favor of the transaction. CMA, CCM, a more recent shareholder in UTELSAT is also supporting the combination. The combined entity will have a balanced ownership consisting of a substantial free float, along with anchor public shareholders and supportive private investors. First, we take a look at the market opportunities that we are addressing. Through this combination, we'll address the future needs across all connectivity verticals, thanks to the disruptive change brought about in the revolution of both HTS geocapacity and LEO constellations. First, utilsats provide HTH technology, which is based on frequency reuse and is becoming the standard for satellite operators. The technology is constantly improving and the next generation of VHTX satellites is closing the horizon. This technology offers unprecedented throughputs, low level of capex per gigabit, as well as flexibility enabling the provision coverage density where it's required. It enables us to address new verticals at a much larger scale, in particular consumer broadband and mobility, and it's fostering more new bandwidth concrete usages. But this is a combination with the constellation world, so handing over to you, Neil, for the constellation view of this technology market.

Thank you, Eva, and good morning, everybody. So look, I think from a LEO perspective, this combination is very important by bringing together these two technologies. LEOs offer global coverage and low latency connectivity. So it is the combination of the two technologies that brings together high capacity, global coverage, high resiliency, and also importantly, low latency. And the combination of these two enables many use cases and then locks demand across multiple segments. To dig a little bit deeper, and I think the exhibit on the top left-hand side really speaks to the opportunities offered by LEO. LEOs offer ubiquity in coverage. And just as a reminder, OneWeb is a global constellation. And as you can see from this exhibit, particularly the top left-hand corner of this exhibit, they also offer much more low latency. and the numbers there are extremely stark. Now, this really, really matters, because low latency is a requirement for modern SaaS-based solutions, which underpin the digital economy.

Therefore, LEO has widened the addressable market very, very considerably. Back to you, Eva.

So turning to the actual market opportunity, because I think that's what makes this truly interesting. As mentioned earlier, satellite connectivity market represents a considerably growth opportunity, and it's estimated to be around $16 billion by 2030, with a CAGR of 14% for the decade to come. The B2B market is expected to triple in 10 years, boosted by demand in particular three verticals. Fixed data, including mobile backhauling and corporate networks driven by network extension and increased use of data, and the rise in need for ambiguous coverage. Government, including military and civil needs, will be driving increases in defense spending and the rise of bandwidth hungry usages, notably in surveillance, and increasing need to connect remote sites. And finally, mobility, both air and seaborne, will be stimulated by the growing size of the respective fleets, improved equipment leading to higher take-up rates, and enhanced service quality leading to higher usage. The B2C side relates to consumer broadband for individuals, small businesses, and communities. In this vertical, demand will be stimulated by the increasing pressure of the universal service obligations as Internet becomes a basic humanitarian need. And of course, it's favored by the high cost of terrestrial rollouts, especially in remote areas. This is expected to result in a market multiplied by five. This growth and demand will be served by both LEO and GEO. By 2030, we expect satellite connectivity market to be a balanced split between both technologies. Let's have a closer look at the two companies and the combination of strengths which is created by this operation and which will be addressing this high growth market. I'll start with UTILSAT, who many of you probably know well. But as a reminder, UTILSAT is one of the world's leading geostationary satellite operators with a global reach and strong European DNA. Its assets include global portfolio of orbital positions with strong positions, especially over the crowded EMEA arc with capacity in both KU, KA, and C-band. UTILSAT currently operates 36 satellites with a further five satellites in the pipeline providing enhanced HTS and VHTS capabilities. The first one actually launching in just a month's time on September 6th. We are operating with a robust ground network, which also includes access to 60 teleports and three data centers. We have over 500 engineering team recognized as world's experts in the fields, representing a wide range of expertise in engineering program management and regulatory affairs. On the commercial side, UTELSAT enjoys a strong institutional relationships across Europe, as well as globally, supported by longstanding partnerships with the European space industry. We're well-positioned to size opportunities related to public procurement. Our sales team is composed of over 100 multidisciplinary executives supported in some 150 pre-sales and sales support operating out of distribution outlets to serve our parallel portfolio of both Blue Chips customers and customers in the different verticals. Finally, UTILSAT enjoys a robust financial profile with over 1.2 billion in revenues, around a 3.5-year revenue backlog, and a 75% EBITDA margin with some 440 per annum in cash flow generation, which brings our leverage to around 3.3, currently as Sandrine was just highlighting. But let's take a look at the other strong player in this industry who will be part of this combination. Over to you, Neil.

Thank you, Eva. So as you can see from this exhibit, OneWeb is backed by very high-profile institutional investors. And importantly, OneWeb is one of just two operational LEOs. I will repeat that, one of just two operational LEOs. Now, as an early mover, OneWeb secured 6 gigahertz of globally harmonized bandwidth, which is secured from the ITU. We also have the highest priority KU band, meaning The burden of coordination rests on the others, i.e., the others have to coordinate with us. The OneWeb constellation is composed of 650 satellites delivering 1.1 terabits of cellable capacity. Now, two-thirds of the fleet is already deployed. And right now, we have most of the satellites required to complete the constellation are actually manufactured. Gen 1 is fully funded. We've already raised 6.3 billion euros, and Gen 2, which is under assessment right now, will provide much more capacity at a much reduced cost. Importantly, we have strong commercial momentum, with 42 distribution partners signed up in the last 12 or so months. Back to you, Ava.

Thank you, Neil. Thank you for this snapshot of OneWeb. And I think, as you can see, these are two very different companies with some very different strengths joining forces at a pivotal moment in time. But turning to why we think these successful partnerships make sense is actually building on a successful partnership that started in April 21. With this operation, UTILSAT and OneWeb are cementing this partnership. As a reminder, UTILSAT announced a 550 million investment in April 21, which was completed in September 21. After that, it exercised 165 call option in October 21. As a result, UTILSAT is already the second shareholder of OneWeb with just under 23% stake and is fully integrated in the governance of OneWeb with three board seats. So Neil and I know each other well already. UTILSAT is also already commercializing OneWeb services across key verticals, enabling OneWeb to benefit from UTILSAT's commercial reach and expertise. In a context of growing collaboration, UTILSAT and OneWeb launched a global distribution agreement in March 22, and today we announced a new exclusive commercial partnership addressing mainly the European and the global cruise market, which is also signed today. Meanwhile, the two companies are progressing on a joint technical and regulatory workstream, shaping the framework for a future hybrid-optimized GU-LEU infrastructure. This includes reflecting on the possible mutualization of investments, both in ground infrastructure and processes of the tools, as well as the design of the second-generation OneWeb. which is already able to leverage UTILSAT's strong institutional relationships and regulatory experience, and to count on coordination and support in addressing policy agenda shaping across the industry. So we believe it's a powerful financial and business combination because the activities of UTELSAT and OneWeb are highly complementary. In a snapshot of what the combined entity will look like, you see that broadcast, which is most effectively addressed by GEO, will represent 40% of revenues in financial year 25, in spite of a slight erosion, but is also a strong generator of cash flow to be reinvested in the high-growth verticals. Two high-growth verticals with B2B connectivity, which will be the largest part of the business, standing around 50% of the combined revenues in 2025. And then finally, B2C connectivity, which initially represents 10% of revenue with an even higher future cash generation potential. So the connectivity verticals will be addressed by both GEO and LEO assets. UtilSAT and OneWeb's ability to combine GEO and LEO will provide the absolute best solution to address multiple customer needs. And it represents a disruptive game changer in our industry from day one. We've already started to work on this. This slide shows a few examples of what can already now be done. in arrow with its need for one hand high throughput around airports and main routes requiring the density of leo and then the other the continuity of service on board of planes which will best be addressed by the ambiguity of leo the cruise market where surges in demand at peak times will require geo density will once again service continuity, requiring legal ambiguity. And a similar picture can be done for the oil and gas market. All of these cases, the complementarity of UTILSAT and OneWeb will enhance network resilience and improve quality of service.

We've also built an integration roadmap going forward.

From the building box described here, we have a clear roadmap towards a fully integrated LeoGeo offering, starting with the resale of Leo capacity by UTELSAT as a standalone product under the existing distribution agreement, which is already live today. To be followed by the end of the year by a bundle Leo-Geo packages with Geo and Leo products sold together to customer as a one-stop solution covering all requirements and stimulating up and cross-selling. And then the next step is to in within two to three years to have a fully completed with a mutualization of respective networks and tools for better integration of Leo and Geo. This will include a common ecosystem enabling asset mobilization and resource optimization, an unfilled customer experience through shared network management and monitoring tools, and a flexible service catalog tailored to each market, as well as the convergence of terminals and antennas. Ultimately, A fully integrated offer with intelligent routing and a single terminal and fully utilized network and automated routing, i.e. automatic selection of the most appropriate network depending on the application, is the target. And this will result in a completing seamless experience for customers and will be fully operational with the Gen 2. We believe that this will lead to a lot of new use cases as illustrated here in both enterprise land mobility and consumer broadband. Finally, the concept of a hybrid Geo-Leo infrastructure will enable us to reduce capex, notably via the right sizing of OneWeb's Gen2. The combined infrastructure will in particular address situations where high volumes of connectivity demands are focused in specific geographic areas. When we look at our numbers, around 70% of internet traffic comes from video. Quite a lot of that is Netflix and YouTube, where geocapacity is a well-suited infrastructure, and most of those users are not that latency sensitive. Geosatellites can complement LEO with a targeted capacity when demand is high. An optimized constellation will require fewer total number of satellites when you combine the fleet and higher fill rates for the entire constellation. At the end, an interoperable terminal for reception and a seamless network will improve user experience. Maybe, Neil, also just to hear from you on customer questions on you coming from the Leo world.

Yeah, I mean, based upon my experience of being in the market, again, these technologies are highly, highly complementary. And so customers, whether they are civilian or military, all recognize and want this interoperability and this combined offering, which would be highly differentiated in the market. That's you, Ava.

Thank you, Neil. And I think it highlights that from both sides, whether it's OneWeb or UTILSAT, we have seen these requests come in for customers that says, this makes sense to combine. This will give better customer service. It will enable us better to address these needs. However, of course, we need not to forget that also on the ESG side, both OneWeb and UTILSAT are building on strength and addressing some of the very important ESG objectives. If you've seen any of the OneWeb commercials, you know that bridging the digital divide is a mission of OneWeb. The mission to bridge the digital divide, thanks to the combination of assets and know-how, is extending our current reach and it opened up new means to address the world's digital white zones. And I think right now, especially OneWeb's Alaska trials, is clearly showing that this is bringing connectivity to areas that had none before. but also delivering on a strong environmental benefit permitting optimization of fleet by both entities will lead to overall adaptation of number of satellites and thereby also the potential of space debris as well as launches and ground infrastructure. And in addition, we'll coordinate our efforts on regulatory aspects of space environment, which is rapidly becoming a very big issue with all the competitors going into space. OneWeb and NeutralSat have the same objectives and is very focused on delivering on these ESG objectives. However, it's not all about ESG. We also want to talk a little bit about the value creation and robust financial profile of the combined entity. starting with financial objectives between now and 2030. In terms of revenue, we are forecasting a low double-digit CAGR over the next decade. Connectivity will clearly drive this growth and represent the majority of revenues by financial year 2025. In parallel, EBITDA is expected to grow at mid-teens CAGR, with an EBITDA margin converging towards best-in-class levels for the industry. EBITDA minus capex is expected back in positive territory by financial year 25 or 26, depending on generation 2 capex facing. Gearing, which will stand at four times net debt post the operation, will be rapidly reduced on the back of a strong EBITDA growth backed by disciplined financial policy. Our medium-term objective is to continue a leverage of around three times.

The suspension of dividend will contribute to this acceleration. Turning to the combined investment plan and CapEx outlook.

On the UTILSAT side, there's a limited maintenance CapEx needs for the five satellites that are under procurement are already partly paid for. Only one video hotspot requires replacement in the short term. And UTILSAT's future FlexSat will enable reduced investment in OneWeb Generation 2. For the OneWeb, I'll remind you that Generation 1 of the constellation is already fully funded by the $6.3 billion raised so far. Generation 2 will see major enhancements through multi... terabytes capacity and with a significant reduction in cost per gigabit and increased flexibility that will lead to a much higher fill rate and extended lifetime compared to the Gen 1. CapEx of the combined entities anticipated at an average of $725 to $875 over the financial years 24 to 30 and it's likely to be front end loaded in the earlier part of this period. But this investment plan will be supported by cash flow generation from UTILSAT and OneWeb combined.

Value creation and synergies in more detail.

In terms of revenue, we anticipate around 150 million in annual revenue synergies with a hybrid geo-layer offering that provides a differentiated value to customers as well as improving the fill rates. Some 80 million synergies are expected to be reached as early as year four. The combination of the two entities is expected to generate annual cost synergies of some 80 million at run rate via cost avoiding at one web as well as eliminating cost duplication between two entities. This will therefore be done in a limited implementation cost and low execution risk. The full run rate is expected to be reached in year five. And finally, on the CAPEX side, we anticipate average annual synergies of around 80 million as of year one, leveraging our hybrid Geo-Leo satellite infrastructure, leading to reduced CAPEX of one-way Gen 2 and for geo-replacement in the midterm. There will also be other procurement synergies, notably around ground infrastructure. These synergies represent a balanced breakdown between revenues, cost, and capex, and taken together, they equate to around an NPV of 1.5 billion post-tax and net of implementation cost. Turning to the transaction terms to give you a feel for how this is going to be achieved. An MOU has just been signed for the contribution of OneWeb shareholders to their stake in OneWeb to UTILSAT, which will come in exchange of newly issued UTILSAT shares. The transaction will be paid for in util chat shares, valuing OneWeb at $3.4 billion, valuing util chat shares at €12 per share, including the dividend and before synergies. As a result, existing OneWeb shareholders will hold 50% of util chat share capital. Prior to completion, UTILSAT will pay an ordinary dividend of 93 cents per share, as Sandrine mentioned, which is expected to be paid in November 22 with a script option. As mentioned earlier, the transaction has the full support of OneWeb shareholders and and UTILSAT reference shareholders. It's been unanimously approved by the respective board of directors with undertaking from BPI France and FSP to vote in favor for the transactions at UTILSAT EGM. In the name of the combined entity name will be UTILSAT and UTILSAT will continue to be headquartered and domiciled in France and listed on the Euronext Paris stock exchange. It will also apply to be admitted to the London Stock Exchange for dual listing. OneWeb will remain a UK company based in the UK, and we will use the OneWeb name extensively commercially. The UK government will keep its exclusive rights in OneWeb. The integration activity will probably take place over 12 months following the transaction to optimize synergy delivery. The transaction will leave a combined group of balanced shareholding structure and governments. The new entity will be chaired by Dominique Dinan, UTEL's current chairman, with OneWeb's executive chairman, Souline Barthes, as co-chair. The board of directors will comprise 10 independent members, two Barthes representatives, one from Her Majesty's government and one from BPI France. I'll be the executive director of the new entity and will head the executive committee. Other appointments will be announced in due course. The illustration shows the performer shareholding structure of UTILSAT post-combination. You'll see the large number of strategic shareholders across both UTILSAT's current anchor shareholders as well as OneWeb. Finally, in terms of timeline, it's kicked up with today's announcement. It's expected to obtain antitrust and regulatory authorizations somewhere between Q4 this year and Q1 23. The transaction is expected to close in the first half of calendar year 23, subject to final agreement of the definitive documents, as well as consultation of UTILSAT employee representatives and clearance of legal documentation by the French stock market authorities. It will be submitted for approval at an Extraordinary General Shareholders Meeting of UTILSAT shareholders to be held in 2023.

A few words to conclude.

This combination leads to the creation of a unique global leader in connectivity with world-class assets. The operation is underpinned by strong operational and financial complementarity between Utilsat and OneWeb. OneWeb and Utilsat together is ideally placed to address the massive growth opportunity in connectivity. The new entity is forecast to deliver double-digit revenue and EBITDA growth for the next decade. and we expect to generate significant shareholder value with 1.5 billion incremental value creation from Synergies. It presents, we believe, a truly unique investment opportunity in the European-listed telecom and space universe. This concludes my presentation. Big thank you to Neil, And Michelle, Sandrine, Neil and I are now ready to take any of your questions. Thank you for listening.

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. We will take our first questions from Terence Swee from Morgan Stanley. Your line is open. Please go ahead.

Oh, thank you. Good morning, everyone, and thank you very much for the presentation and all the details that you provided today. I've just got a couple of questions around the investment profile of the combined entity. Perhaps you can say just a bit more, Carla, around the Gen 2 CapEx. How many satellites do you envisage Gen 2 comprising? And what do you think the CapEx specifically, like on a per satellite basis, could be for those satellites? And then thinking just a bit further out, how do you envisage the payback from all of these investments that you're making? The Eutelsat CapEx is effectively doubling. How do you get confident over the long-term payback given there's so many other competing LEO constellations that are planned to be launched in the next couple of years or so? Thank you.

Neil, maybe I start, and then I'll let you compliment, because you certainly know this better than I do. As you can see, we do expect a step up in CAPEX over the next decade, the majority of that being linked to the need to invest in Generation 2 satellites for OneWeb. As of today, that is not fully detailed. It's on the drawing board, as I would call it. And what's quite important is that we have estimated as part of this deal the capex needs going into this and how we can fund that over the next five years to come. Neil, you want to say a word or two on your thinking on Gen 2?

Yeah, sure. So we have spent quite a lot of time examining and designing Gen2. I think one of the real merits of this deal is that by actually designing this together, as was intimated in the presentation material, we can make a much more efficient Gen2 by combining the Leo and Geo assets together. And Pascal Homsey is the CTO of Eutelsat. is actually the chair of our technology committee. So we'll be collaborating even further on the design of Gen 2. With respect to your questions regarding payback, et cetera, I would just say this. What we're seeing is, and particularly in the markets that we're already serving, particularly in the markets 50 degrees north, is that today we do not have enough capacity to meet the needs of those markets. And that's before the growth in demand that will be experienced in those markets as low latency connectivity is experienced by communities, businesses, and governments. So we feel very good about the prospects for Gen 2. We know we are highly confident that as much connectivity capacity that we can provide will get consumed in those regions in particular.

Thank you, Neil. Want to take the next question?

We will take our next question from Alexander Peter from Associate General. The line is open. Please go ahead.

Yes, good morning and thank you for taking my question. I just have a few. The first one would be on the geo-leo hybridization, which seems to me to be the key attraction of your of your combination. So is this ready soon? Is it contingent on a successful Gen 2 launch or a related date? When can we expect this differentiation to kick in? My second question is on your long-term over-the-cycle assumption for the combined entities CapEx to sales intensity. So where do you expect the station to sit when you reach a steady state by, say, 2030? And then finally, What will be the impact of this combination on your credit ratings and any implications of potential costs of future refinancing and funding? Many thanks.

Thank you for these questions. Let me try to address the first two, and maybe Sandrine will take the one on our credit ratings. But starting out with the GEO-LEO relationship, it's a multi-step approach. In the very short term, we will see combined commercial offers already happening as we speak, based on our commercial agreement, which is already signed back in March, but also on the exclusivity agreement that we are also co-signing today. In the medium term, over the next couple of years, you'll see more technically integrated offers also where we start the utilization of networks and tools so we can better integrate it. And then also, finally, and that will probably be beyond the next couple of years, we'll see a fully integrated offer where we also have intelligent routing and single terminals. That takes slightly longer than the next couple of years, so it's probably at least four to five years out. But there are several steps to take to actually have these joint offerings today where you take a big advantage of the ambiguity and continuity of service and low latencies of LEO for certain applications while you leverage the low cost and high capacity to focus capacity of geosatellites. It is based also on the launch of several high throughput satellites of UTELSAT. As you know, we will be launching the BHTS in September out of Kourou. We've already launched the Quantum, which is now fully sold out as the very first of its kind. And we are also today announcing investment in an additional FlexSat, which will be the combination of the connectivity probably over the Americas, serving especially the maritime market. So it truly will be CapEx spent for a big majority, Generation 2 of OneWeb, but also combining this with HTS, satellites for high throughput, low price, GU capacity. On the final one, on the credit rating, Sandrine, maybe you want to say a word or two?

Yes, thank you, Eva. So, hello, Alexander. So, on the credit rating, we haven't had yet some ex-ante discussion with the rating agency, so this is the work that we will do with the rating agency within the next coming weeks. I think it's important to highlight that the OneWeb has no financial date on the balance sheet, so there is no additional debt at the closing on the consolidated perimeter. And we think that we are showing a strong deleveraging trajectory that will support the rating for the future. And we expect, as Eva mentioned, to start at closing with four times leverage with a fast deleveraging trajectory, as I mentioned before.

Next question.

We will take our next question from Roshan Ranjit from Deutsche Bank. Your line is open. Please go ahead.

Great. Morning, everyone, and thank you for the questions. I've got three, please. I guess the first one, just to follow up on one of the other questions around the Generation 2, and if I know, Neil, I think you said that things are still in the planning, but if I think back to some of the Previous comments and I think the satellite manufacturer was suggesting that there was a cost of around a million dollars Per satellite as part of the generation one constellation I guess as no technology has improved and I think was as was alluded to in previous calls You know that cost per unit is likely to have gone down and I think there was a number of at the end of last year which suggested around three billion dollars for generation two so if you could just comment around that or if things have now changed that that will be uh very useful um secondly also just to get a i guess a an idea of i guess why now for for this deal because as you highlighted over the last year we've seen a much closer collaboration between utilsat and one web resulting in that distribution partnership agreement earlier this year because what what is the kind of trigger trigger point now for this deal and i guess that is to to both uh eva and to neil either is there something that's changed on the on the broadcast side maybe where you feel that now this is the right time to jump more into this leo constellation and the last question is just around the dividend now you've suspended it for fiscal year 23 and 24 Ambition is to return to a more shareholder friendly message from 25. Is that purely dependent upon the kind of leverage hitting this around three times that you message? And how should we think about that stepping up over time? Thank you.

Neil, I actually suggest that you start out with the first one here on the Gen 2 spending. And then I'll take over on... Well, you can also give your say on why now is a good time. And then I'll take over and talk on my perspective. And let's hope we'll be aligned. But why don't you start out?

Okay, I'll do that. So first of all, on satellite cost, I think that... I mean, currently, the cost of the satellite depends upon the size and sophistication of what you put in the satellite. So I think our perspective is somewhat different, perhaps, than some of the others out there, where we think fewer, more powerful satellites actually is necessarily the way to go. So the key thing that I look at, frankly, is what is the cost per capacity that you can deploy? And we're not in a position to give that number right now. But I would just refer you back to my earlier comment that we think we're very confident that the capacity, we'll be able to provide much, much more capacity at a much, much lower cost with the satellites that we're planning together with UTOSAT. Why now? So look, I think this is, from my perspective, this is a real recognition of what we're hearing in the market. And as I hinted before, as I stated before, whether it's a civilian customer or a military customer, they essentially all want the same thing. They all want connectivity, but they also want the power and interoperability of these combined offerings. And so from my perspective, it's a real recognition of what customers are telling us, and also the pace of which we have to move. This is a very fast-moving market, And making this combination right now speaks to both meeting the customer demand, but also the pace of which the market is moving and how fast we want to move collectively together. Back to you, Ava.

Yes. And thank you, Neil. And I think I am 100% in line with you that this is what we hear in the market. This is what customers are asking for, saying, can we get both? We both want the high throughput capacity to flexibly provide big amounts of capacity. But of course, we also want the low latency. Can you do that? And I think we now can say, yes, we can do that. And we will do that together with OneWeb. And we will even want to do it in a seamless fashion. And to get to a point where we can do this in a seamless fashion across terminals, across networks, across tools and services, we need to be one company. And in this sector, to be one company and to have such an offer takes time. So now is the right time, especially given the architecture and thinking about Gen 2, to start that work together. And we need to sit in the very same boat to have the very same objectives to get there. So that's why the timing is right now. The big value creation of $1.5 billion is because we sit in the very same boat and we look at the same huge market opportunities with customers asking for it at the same time. So doing this together where we fully can sit side by side developing offers against this market, we need to do that from now. Also, I think it's important to say that it combines a truly strong set of shareholders on both sides with strong telecom shareholders with the Barchi Group on OneWeb. And as you know, UTILSAT has now for a couple of years been working on our telecom pivot strategy and this brings into more focus this pivot towards connectivity, which we've been talking on for a couple of years. It's taking a leap forward on that journey with the telecom pivot strategy. I think that was the key question here. On the return to leverage and dividend, it's clear that we will pay the dividend this year with a 93 euro cent per share dividend with a script option, but then we will suspend dividend for a couple of years. Exactly until when, we don't know. We do expect to return to a dividend policy over time. It will depend on both profile of CapEx investments, but we do expect to return to a dividend policy in the medium term.

Okay, that's helpful.

Thank you.

We will take our next question from Priya Vishwanathan from Associate General.

The line is open. Please go ahead. Thank you, guys, for all the information and for taking my question. A couple from me, please. Could you give us an estimate of the integration costs that you expect to have to spend for bringing about the actual execution of the deal? And I have another one in terms of the deleveraging plan that you have for getting back to the three turns in the medium term. Considering that you haven't had a conversation with the agencies and perhaps that you have already got the negative outlook from S&P this March, which indicated there was already limited headroom there, is hybrid issuance something of an option that you will explore in case it puts your BBB minus rating at risk with S&P? Thank you.

Let me maybe start with the first one, and then I'll hand over to Sandrine for the second one on the S&P and ratings agencies. I think on the estimate of cost integration, I think the 1.5 NPV is actually net of integration costs. So I think that's worth to take into account. But foremost, I actually want to say that given the high growth outlook for OneWeb, and the complementarity of assets, a lot of these synergies are not necessarily very costly to implement. It's about building a commercial network together, leveraging the strengths of both, rather than a big overlapping commercial network today. It's about building the future generation 2 in the combination with FlexSats from UTILSAT in the right way rather than eliminating a set of network. So in terms of actually integration cost, of course, there will be some. But in general, it's a very complementary set of synergies we're bringing forward here, and thereby also bringing them up to full speed over the years, given that this is very much focusing on building a growth company. On the deleveraging plan and the agency discussion, Sandrine, maybe you want to say a word or two?

Yeah, thank you, Eva. So, yes, as we said, clearly the reduction of leverage will be a very big area of focus during the first year of the combination. We will keep all options open. So if hybrid can make sense at one point in time, of course, we will look at it. So all options are on the table, and the focus will definitely be to deliver the company in the first year of the combination.

Thank you. If I may be allowed one follow-up. Can I confirm that it is your stated intention to remain investment-grade from both agencies for the combined entity also?

Thank you.

As I was saying, we haven't had discussion ex-ante with the rating agencies. So this is all the work that we will do in the next coming weeks to see what is their positioning around this.

Fair enough. Thank you.

Thank you for the response.

We'll take our next question from Sami Kasab from BNP Paribas. The line is open. Please go ahead.

Thank you very much and good morning, ladies and gentlemen. I have several questions. Perhaps the first one to start with, can you provide us with an update on Generation 1 in terms of entering to service date 22 and 23 revenue guidance and any break-even year for OneWeb's ABDA on a standalone basis to see how you think about Generation 1? Secondly, do you expect OneWeb to become eligible to the EU Commission Constellation Project now that it has merged with UTELSAT? And lastly, beyond LeoGeo, can you comment on any technological differentiation you think Gen 2 will have compared to the other planned non-geosystems out there. Thank you.

Thank you for your questions. I think, Neil, do you want to give a little bit of an update on Gen 1? Because there's actually a lot of really impressive progress here.

Yeah, sure. So I will deal with the first and the very last question you had, and I'll leave and I'll refer back to Ava and Sandrine for the ones in between. So in terms of where are we in terms of implementation, as I mentioned in my earlier comments, we have 428 satellites in orbit right now. That's two-thirds of the space constellation deployed. We have about 25% of the ground stations already up and running and deployed, with the remainder with another – 50%, I imagine, to be completed by the end of this year. We are actually in service 50 degrees north, which for the non-geographical review is basically from the US-Canadian border to the North Pole, right across the Atlantic, south coast of England to the North Pole. And we are serving customers in Alaska, Canada, Greenland, and also have a whole range of trials taking place in northern Europe, which are in areas in northern Europe. So I'm pleased to say that we're making very good progress. We expect to continue and we are contracted to continue our launches later this year. And as I mentioned before, we've almost completed the production of the remaining satellites which will be deployed over the next sort of nine months, I would say, in order to complete the constellation by the very end of the year. In terms of technical differentiation, which is your very last question, I would just draw you to, if you look at the OneWeb website, look at the various press releases, and in particular, look at the press releases that we've seen, that we demonstrate, Leo Geo connectivity with a multitude of different user terminal providers and manufacturers, and also the demonstration that we've been doing with 5G. It's the integration of these offerings. That is the differentiation in the marketplace, and that is what customers want. With that, I'll hand back to you, Ava.

Yes, thank you, Neil. Just addressing the EU constellation, it's clearly an area that we've been working intensely on for, well, the last year. And we're also closely following some of the requirements that is likely getting drawn up and will come out through an RFP probably sometime this fall or winter. And it's clear that we would absolutely love to provide OneWeb's capabilities both in Gen 1 but especially also in the Gen 2 for the EU constellation. And we're hoping to open up talks with the people behind the EU constellation in order to make sure that we'll be able to address the requirements put forward in the EU constellations. So yes, we definitely think that's a great opportunity, both for OneWeb and Utilsat, but certainly also for Europe.

Should we take the next question?

We will take our next question from Ben Lyons from Credit Suisse. Your line is open. Please go ahead.

Good morning. Thank you for taking my questions. I have a few, if that's okay. The first one's on the deal, on the financials. So from my understanding, Utilsat will be putting in a 23% stake in OneWeb plus the Utilsat business. And then I guess you've got the remaining 77%. If I look at this valuation there, 3.4 billion for OneWeb, and I take out the implied stake at OneWeb, I think I get to a core business equity valuation of about 1.8 billion euros. Is that the right way to look at it? And if I could sort of move on, this one's perhaps for Neil. How many of the Gen 1 satellites are actually active and in orbit? I'm just sort of looking at the failure rate. I think you've got to get to 588 to have global coverage. And as a further to that, I mean, does GeoCafex have to increase if you want to supplement the global LEO network? Do you have to invest in DHGS on a more global basis? And, you know, possibly if I could sneak in another one here, just in terms of sort of the CapEx side, you know, 20%, you know, 80 million is about 20% of the utility of CapEx in terms of the synergy number. That seems quite high.

Where is that coming from? Thank you.

Okay. Niels, should we start with the second one? Because this is a little bit in the continuation of the first question on the satellites, and then I'll come back to the evaluation elements.

Yeah, sure. So we have, as I stated previously, we have 428 satellites in orbit today. I can't quite recall. There's a few of those which are still in orbit raising. But as I mentioned, we have 428 satellites in orbit today. You are correct in that in order to operate the constellation, we need 588 satellites. But the goal is to make sure that we have in orbit spares and also a batch on the ground should we need to deploy them. So that gets us to the number that you quoted. In terms of the kind of, I think the point here is that we feel as though, particularly for Gen 2, and I think this is what the exhibit in the presentation was seeking to communicate, is that by combining these LEO and GEO capabilities that combined, we can basically, we can deliver less CapEx going forward. That is the point of the exhibit. Back to you, Ava.

Thank you, Neil. I hope that gave a bit of background on where we stand here. In terms of some of the transaction highlights, the transaction is based on an exchange parity ratio rather than an actual acquisition value. But let me try to give you a few highlights. We believe that OneWeb is worth more than the US$3.4 billion valuation that was implicit in the latest minority investment. Since then, the company has really advanced in terms of its deployment, as Neil just pointed to, and also successfully completed the commercial launch in Alaska and Canada. But if we base it on this implied 3.4 billion US dollars valuation for OneWeb from their last funding round, and then we account for, as you said, the 23% UTILSAT share in OneWeb, And then we have the 50-50 allocation between the two groups shareholders. This implies a value per share of around 12 euros per utilsat shares, 11.1 excluding dividend. This means that we'd be issuing shares as a small premium over our current share price, and we'll be proposing to the util chat shareholders this $0.93 per share dividend in November.

I hope that answers your question. Should we take the next?

Could I possibly just ask about a follow-up? Just looking at Previously, do you think the one-web stake was incorporated in the share price then? If I look at the utility business, if you include the stake, that would be sort of circa four euros of that share price.

So do you think the core utility business is worth around eight euros a share?

I think this is based on a 50-50 parity ratio. So yes, there will be some element of the 23% stake of OneWeb in utils at share price. I think that has been the fact for a while, that most analysts have integrated some value of the OneWeb stake in our share price. and it's the UTILSAT valuation which equates the 50% share, whereas OneWeb has the other 50% share in this 50-50 parity ratio. That's how it works.

Got it. Thank you very much.

We will take our next question from Carl Murdoch-Smith from Barenburg. Your line is open. Please go ahead.

Hi. Thank you very much. Two questions from me. Firstly, I was just wondering if you could talk a bit about the history of the talks between the two of you and kind of how long discussions have been going on. I suppose I'm just mindful, Eva, that you've not yet finished your seventh month as CEO. And then secondly, I just wanted to ask about management compensation. And have you kind of debated or decided how that's going to evolve going forward? I'm just mindful that in the past, discretionary free cash flow has played a large part both in the annual bonus and in the LTIP. And obviously, with the investment case and investment proposition changing significantly going forwards, is management compensation structure going to evolve? Thank you.

Good question. Thank you. I think this deal bases itself, and Neil has been there even longer than me, and luckily we have teams on both sides who have a good long history in both UTELSAT and OneWeb. So these are companies that know each other well, and especially based on the acquisition that was done in last year, about a year and a half ago. I think that was the start of this collaboration, and this is a big leap forward in these discussions, but the good collaboration and discussions to some extent started back at the first acquisition of the 23% stake in OneWeb. And since then, I think both Neil and I actually have joined the party and continued the very good talk and collaboration. And I'd say it is also based on a very strong OneWeb board and a very good collaboration in OneWeb board in terms of real business focus from all board members on getting OneWeb successful, getting the launches done. managing whatever headwind the Russian-Ukraine crisis had done on launches. It's really been a business focused on succeeding with OneWeb, and that's also a big part of why this can happen today. So to some extent, it's been a discussion going on for at least a year and a half, if not longer, but of course it's intensified a little bit over the last couple of weeks to get this done.

Yeah, I would just, Eva, if I may.

Yeah, please, Neil, jump in.

I would just second that. I mean, so, you know, I think that we were discussing, you know, discussions have been ongoing essentially since I started back in November 2020. And to give, to paint a picture for the investors on the call here, there's a very, very strong operational linkages across between OneWeb and Ecosat today. We have a number of key personnel who formerly worked for UtahSAT, you know, at an operational level that have a very high degree of collaboration. And I can tell you this morning, having been talking to some of our technical folks and being in our knock on our sock, a very high degree of excitement internally relating to this combination. Back to you, Ava.

Yes, thank you. So I think to some extent it's a very natural big leap, but a very natural big leap for both companies to move in this direction. On management compensation, you're right that for UTEL's management group, including myself, we've had a big share of financial incentives, including free cash flow. As we're just starting our new financial year, that is also planned for this year. As for now, for the next six to nine months, both Neil and I will have very much a focus on business as usual, delivering value from each of our companies until we have this merger fully cleared through all the different regulatory and competitive affairs. So we also need to have it through our general assembly in November, as I said. So as of now, it's quite relevant to maintain some of the same financial objectives. Then, of course, we'll need on the longer term both to think about how this organization will work together. And naturally, we will also have to revise incentives. Most likely that will be relevant sometimes in the spring to look at the incentive for the combined entity. Given that we'll be in a much more growth-focused organization where we'll also be doing quite a lot of network investments and investing in new technology, I think we'll also potentially revise the mix between the incentives going here. As you know, it's not purely financial incentives. Today it's a mix of revenue and free cash flow generation as well as more individual financial incentives, more individual incentives including also ESG incentives as well as employee and customer satisfaction incentives would be natural in a combined entity. But that is to be developed over time.

That's great. Thank you very much.

We will take our next question from Sami Kassab from BNP Paribas. The line is open. Please go ahead.

Thank you for my follow-up question. I have a technical question that requires clarification. When you say 50-50 parity ratio, I'm not sure I understand how the 23% stake in one web that utilsat has today is accounted for in the 50 50. so my question is whether the 50 shareholder that get half of the new group whether these include the likes of party softbank the uk and as well as utilsat or whether utilsat is not included with sharing one web in that 50 ratio. So do shareholders end up with 61.5% of the new group or just 50%? Thank you. Yes.

It's clear that it's not included. It is a 50-50 parity ratio where utilsat's value includes the 23%, so it's a 50-50 combination. Then there will be, given that we propose a script dividend, depending on the uptake of the script dividend, that may change slightly. We don't expect it to, but it will remain around the 50-50 parity, but it does include the 23%. ownership that we already have in one web in those 50%. I hope that clarifies your question.

It does. Thank you, Eva.

Once again, if you'd like to ask a question, please press star 1.

I think we're maybe a little bit at the end of it, so if there's a single question left, otherwise we, of course, will be super happy to help you with any other questions through our investor relations team. But is there a single question where somebody is burning with? Doesn't sound that way, but we're here to answer any question you might have, so feel free. I want to especially thank Neil for helping us out here and giving us way much more color on OneWeb and this deal from the OneWeb perspective. I'm looking forward to continue updating you on the progress of how we move forward with closing this deal. And, of course, if you have any outstanding questions on the details of the UTELSAT financial results for 2022, which is also announced today, we actually do have Michel here also, who has not been able to explain all the good things happening across UTELSAT. But if there are any questions of that, we are, of course, available. So thank you to Neil, Sandrine, Michel, and to all of you for your time this morning.

Have a great day.

This concludes today's call. Thank you for your participation.