Eutelsat Communications

Good day and welcome to the UDLSAT Communications full year 2022-23 results presentation conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Eva Bernicke. Please go ahead, madam. Thank you.

Welcome. Good morning. Good morning. And thank you for joining us today for UTILSAT's full year 22-23 results presentation. I'm Eva Wernicke, CEO, and I joined today's call by our CFO, Christophe Couturier. Let's start by taking a look at the highlights of the year. This year's operating verticals revenues were at the upper end of our expected range. This performance was namely based on sustained momentum in mobility connectivity. We posted a double-digit growth over the full year. We delivered a very solid financial performance, including an industry-leading adjusted EBITDA margin of 73%. Adjusted discretionary free cash flow of 518 million, comfortably within our expected range of an annual average over two years of 420 million at the exchange rate euro-dollar of one. 382 million proceeds related to phase 2 of the C-band, and that's in dollars, transitioned recognized in very late June 23 after the completion certification. On the operational front, this financial year was also marked by a successful entry into service of three satellites. We launched four, but three of those four have already gone into service. The two hot birds, 13F and 13G, is ensuring service continuity, our flagship 13 East video position. But the hot bird, 13G, is also hosting an incremental ECNAS payload, which is also part of the strong performance on cache this year. Users at 10B, which we just announced had gone into service, carries incremental 33 gigabytes of capacity, addressing especially demand in mobile connectivity, but also sees and enjoys firm pre-commitments from both Intelsat and Panasonic. And today I'm happy to announce that we just signed a four-year multi-million deal with Marlink for specifically capacity on the E10B, illustrating the very strong commercial traction addressing the booming mobility connectivity needs. On the back of this, we confirm all our objectives with sustained cash generation and return to growth next year on a UTILSAT standalone basis. This leaves UTILSAT with strong foundations to ensure the successful merger with OneWeb, where the EGM is expected to approve the transaction in late September. Looking at a few of our key figures, Christophe will come back to the details, but let me just take you through the highlights. Revenues for our five operating verticals stood at 1,136,000,000 on a reported basis, and 1,157,000 at the exchange rate of one euro to a dollar, on which our original objectives were based. This represents a 4.8% decline on a like-for-like basis, but it's comfortably within the midpoint our expected range between 1,135,000,000 and 1,165,000,000. Also, we delivered an industry-leading profitability with an adjusted EBITDA of 73%. The decrease year-on-year is illustrative of the changing revenue mix between video broadcasting and mobility connectivity. Cash capex stood around 271 million, which is broadly stable year-over-year, despite the launch of four new satellites. Discretionary free cash flow stood at 462 million euros on a reported basis. On an adjusted basis, as our financial objectives, which is at the 1 euro to US dollar rate, it stood at 518 million, well above the objective of the annual average of two years of 420 million. The net debt to EBITDA ratio stood at 335 in June, broadly stable versus last year. We remain comfortable compared to our medium-term objective of three times, as we shortly will receive the 382 million US dollar pre-tax in respect to the second phase of the C-band proceeds. Now let's have a look at full-year revenues. Total revenues for the year stood at 1,131,000,000 euros, down 1.8 on a reported basis. Other revenues, as a reminder, revenues other than those generated in the commercialization of satellite capacity were down 8 million, including a 3 million negative variation in hedging revenues. Excluding a positive currency effect of 33 million based on a euro to dollar rate of 104 versus 114 last year, revenues of the five operating verticals were down by the before mentioned 4.8 percent on a like-for-like basis. As you'll have noted, and we wanted to do a little bit of explaining of this, we've slightly adapted the way we report our operating verticals. The definition of operating verticals remains the same, but our new framework is altered from five segments to four within the operating verticals. Video will be regrouping broadcasting and professional video that used to be two different segments. Fixed connectivity will encompass data and fixed broadband. Mobile connectivity and government services will remain as they were before. Proforma quarterly data, 21-22 and 22-23, is provided in the appendixes of the press release. Let's look at the different segments in the revenue in more detail. Video is 62% of the group total, recorded revenues of $705 million, down 8.3% versus last year. Government services, around 12% of group revenues were down 7.2%, with revenues 143. Mobile connectivity, a 10% of total, saw revenues of 110 up by almost 27%, 26.8% to be precise. Fixed connectivity, 16% of revenues stood at 178, an organic decrease of 2.3%. Going to the operational performance Video, the full-year revenues we just mentioned were down 8.3% to 207 million. This reflected the full-year effect of the non-renewal of DigiTurk, which we previously mentioned, lower revenues in Europe, the effect of the sanctions against certain Russian and Iranian channels, which mainly impacted the second half, and professional video revenues, which account for about 10% of this vertical, also decreased. reflecting structural headwinds as well as some seasonality on key events. On the commercial front, and more positively, UTILSAT was selected by Orbi Elevate for the distribution of the first mainstream English language direct-to-home services for the U.S., leveraging the coverage of UTILSAT West 117 over the U.S. UTILSAT also extended its partnerships with DO, the Emirates Integrated Telecommunications Company, to upgrade It's tied to home services across the Middle East and North Africa. Government services revenues start at 143 million, down 7.2 year-on-year. Fourth quarter revenues stood at 45 million, up by almost 26%, and 45% quarter-on-quarter. This increase was mainly due to a one-off contract of 14 million with German space agency DLR, whereby Hartberg 13F provided a service from April on the 0.5 east orbital position. Excluding this impact, fourth quarter revenue declined with 14%, a level consistent with the trend we also saw in the third quarter, albeit presenting a slightly improved trend versus first half, thanks to superior renewal rate in the spring of U.S. DOD campaign, which is above 70%. We saw only 65% in the fall 22 campaign. Mobile connectivity revenues stood at $110 million, up 26.8% year-on-year, reflecting a very positive momentum, especially in maritime. Fourth quarter revenues stood at $27 million, up 20.7% year-on-year, and 2.9% quarter-on-quarter, reflecting the positive impact of the commercialization in the first half of the third beam on the UTILSAT quantum for maritime mobility customer. Fixed connectivity stood at 178 million, down 2.3% year-on-year. In broadband, 40% of this application revenues were broadly stable on a comparison basis, including the contribution from the wholesale agreements with Orange Tim and more recently Hispasat and Swisscom as well, but to a lesser extent the growth of African operations. In fixed data, which is 60% of this application, we saw improved volume trends partly offset by negative impact on the ongoing competitive pressure on prices. Fourth quarter revenues stood at $41 million. On a like-for-like basis, they were down by 60% year-on-year and by 6.9% quarter-on-quarter, reflecting tougher comparison basis, including a positive one-off of 2.5 in the fourth quarter of last year. Including this one-off, they were broadly stable on a sequential basis. Turning to backlog and fill rate, the backlog stood at $3.4 billion at end June versus $4 billion a year earlier. reflecting the natural erosion and the absence of major broadcast renewal in this quarter. And it's partly compensated by additional mobility contracts. The backlog was equivalent to three times 21-22 revenues, and video represented 59% of the total versus 64 a year ago. The backlog profile is progressively reflecting the rebalancing of our operations towards connectivity with also shorter contracts. Moreover, the backlog does not yet include managed service, with a new definition to provide it next fiscal year. The number of operational transporters as in June 23 stood at 1,351, broadly stable year-on-year compared to last year, while the entry into service a new regular capacity compensating for the stable orbit life of a few satellites over the last 12 months. The number of utilized transponders stood at 953, down by 43 units year-on-year, but up 37 units compared to March, the latter reflecting seasonality of certain maritime contracts, especially in Europe. Keep in mind that this picture does not include yet the HTS capacity of some of our satellites, such as Eutelsat Connect. As a result, the fill rate stood at 70.8% compared to 73.2 a year earlier, and 67.8 in December. Let's now turn to the more detailed financial results and I'll hand over to Christophe.

Thanks, Eva. Good morning, everybody. Happy to be here with you. I will start with the adjusted EBITDA, which stood at 825 million euros at the end of June 2023, compared to 862 million euros last year, down by 4%. The adjusted EBITDA margin stood at 72.9% at constant currency. That is to say, 73% on a reported basis versus 74.8% in fiscal year 2022. This is on the back of lower revenues, mainly in the video business. Operating costs were 16 million euros higher than last year, reflecting, first, increased staff and technical costs due to a changing revenue mix and, to a lower extent, inflation. the cost incurred by transactions with Russia, and third, exchange rate negative impact. This adjusted EBITDA margin is reflective of the progressive rebalancing of our business towards connectivity applications. Turning to the P&L, group share of net income stood at €315 million versus €231 million a year earlier, up by 36% and representing a margin of 28%. This reflected on the positive side, lower depreciation of minus 455 million versus minus 482 million euros in year 22, which was due to lower in-orbit and on-ground depreciation. Two satellites, Hotbird 13F and Hotbird 13G, entered into service, respectively, on April 4th and May 30th, 2023. Other operating income of 203 million euros compared to an income of 45 million euros last year and includes 382 million dollars related to phase two of CBAN proceeds. As a reminder, last year's other operating income including 125 million dollars of phase one of CBAN proceeds. On the dignity side, Net financial results of minus 91 million euros versus minus 65 million euros a year earlier, reflecting an unfavorable evolution of foreign exchange gains and losses as well as higher interest rates. Higher tax at minus 67 million euros versus minus 49 million euros a year earlier, reflecting notably The 30% tax rate applied to the above-mentioned SBAN proceeds. And negative income from associates of minus 87 million euros, reflecting the full-year contribution of the Stake-in-One Web, which last year was only from September 2021 onwards. Moving to cash. Net cash flow from operating activities amounted to 735 million euros, 66 million euros, lower than a year earlier due to lower adjusted EBITDA and the first installment of $100 million of the take-all pay agreement signed with OneWeb, partially compensated by lower working capital requirement needs, namely thanks to a prepayment in respect of the EGNOS contract of 85 million euros and strong cash collection. Cash capex amounted to 271 million euros a level broadly stable versus 280 million euros last year. Interest and other fees paid net of interest received amounted to 95 million euros versus 78 million euros last year. It notably reflected interest from the credit facility drawn down for the financing of satellite programs. Discretionary free cash flow amounted to 462 million euros on a reported basis. up 19 million euros. Excludes the first installment of $100 million of the take-all pay agreement signed with OneWeb. Adjusted discretionary free cash flow as per the financial outlook definition and at a euro-dollar rate of 1, 2.518 million euros down 3 million euros or 1%, but well above our objective of an average of 420 million euros per year at a euro-dollar rate of one for fiscal year 23 and fiscal year 24. Turning to the next slide, at the end of June 2023, net debt ended at 2,766 million euros, down 49 million euros versus end of June 2022. It reflected higher discretionary free cash flow of 462 million euros generated in fiscal year 23, the reduced dividend payment of 81 million euros following the payment of part of the dividend in shares under the script option, the outflow related to an inorganic investment of 143 million euros, mainly for one web, and other items which contributed to the increase in net debt for a net impact of 190 million euros. This reflects mostly the use of a debt-related finance lease for the financing of satellite programs, which amounted to 200 million euros. As a result, the net debt to EBITDA ratio stood at 3.35 times, compared to 3.27 times at the end of June 2022. We remain comfortable compared to our medium-term objective of around three times as we expect to receive the cash of phase two of CBAN proceeds of $382 million pre-tax. The average cost of debt after hedging stood at 2.96% versus 2.55% in fiscal year 22 in a higher interest rate environment. The weighted average debt maturity stood at 3.6 years compared to 4.3 years at the end of June 2022. And last but not least, Equity remains strong with undrawn credit lines and cash of around 1.5 billion euros. This is it for the financial results. I now hand it over to Eva for the outlook.

Thank you, Christophe. Let's turn to the outlook.

First, our assumptions for each operating vertical for financial year 24. Video revenues are expected broadly in line with market trends amidst single-digit decline. including the effects of sanctions, which will be embarked for full 12 months next year versus six months in financial year 22-23. Development services will continue to reflect the outcome of past and upcoming U.S. DOD renewals and a tougher comparison basis with this financial year due to the mentioned one-off DLR contract. Revenues will, however, benefit from the IGNOS contract at heartburst 13Gs, which is set to generate $100 million over 15 years. Both mobility connectivity and fixed connectivity verticals are expected to experience double-digit growth in the next financial year on the back of entry into service of UTILSAT 10B and ConnectVSTS, both with firm pre-commitments and positive commercial traction. On the back of this, we confirm our financial outlook on a standalone basis. Revenues are expected to return to growth from this next financial year and onwards. And elsewhere, cash capex will not exceed the $400 million per annum for each of the next two fiscal years. We also confirm discretionary fee cash flows at an average of 420 per year over the next two fiscal years. So we confirm our leverage targets. These objectives, of course, all on a standalone basis and based on nominal deployment programs. You'll find a slide, just a reminder of future launches with the UTILSAT-36D and FlexSAT Americas, which are currently in procurement. And turning to a bit of update on OneWeb. OneWeb continues to enjoy strong commercial momentum with a 50% increase in contracts signed since last October for a total backlog a bit over 900 million. Recently, OneWeb signed a multi-million take-or-pay contract with Telstra for cellular backhaul in Australia. This deal illustrates how OneWeb, with its top-notch B2B approach, can provide capacity to telcos, especially in remote areas, through its service-level agreements, which are necessary for resilience and better real-time experience. In June, OneWeb also achieved its revenue target with revenues just over $50 million. Announced today, the later-than-expected availability of terminals should lead to a slight delay in revenue recognition at OneWeb this coming year. All in all, This marginal adjustment of 2% of the midpoint of revenue range of the combined entity has no impact on cash flow generation and long-term market prospects of the group. A quick work on where we are in the transaction process. We're waiting for the final authorizations, namely from France and the US, before we call for an extraordinary general assembly. We expect this extraordinary general assembly to take place in the second half of September 23. Once it's approved by the EGM, the combination will immediately be live as the teams are fully focused on making the combination a success. This timeline is fully compatible with the operational and financial objectives communicated at the announcement of this combination project. So in summary, looking ahead, the achievements over the past year put us in a very strong position with everything in place for a successful combination with OneWeb. We reorganized UTILSAT along to business unit video and connectivity to capture the market opportunities. Three of the four satellites that we launched in late 22 are now part of a fleet providing services at key orbital positions, underpinning the return to revenue growth. And the next change will be the entry into service of ConnectVHTS, which brings 500 gigabits of capacity to address the booming needs in broadband over Europe and Africa. Eutelsat's capacity to generate sustained cash flow is more than confirmed with over 2.4 billion euros of cash generated over the past five years. Elsewhere, Eutelsat is also at the center of the plans to build a European multi-orbit constellation, Iris Squared, where we are part of the Space Rise Consortium. And finally, the combination of OneWeb is on track to close by the end of Q3 in this year, and we are ready to go live day one. Thank you for the attention. We are now ready to take on any of your questions. I think we have a few already in, but otherwise feel free to write in on your questions.

Thank you. Ladies and gentlemen, if you would like to ask a question over the phone, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, please press star 1 to ask a question. And we take our first question from Alexander Pederk with Societe Generale. Please go ahead.

Yes, good morning, and thanks for taking my question. I hope you can hear me well. I just have a couple. So first, on OneWeb, if you could comment on the backlog momentum under the impression that the 900 million figure is stable versus what you reported. With nine month results. So is there any underlying progress that is not immediately visible here for us? And then the second is still on one web Regarding the delay in terminal availability Could you tell us if this has to do with component supply issues or the technical difficulties at the terminal manufacturers and have you now secured fully and the supply for fiscal 24 or there are further risks of slippage that may lead to further revenue output reductions at one web.

And I have a very quick follow-up after that. Thank you.

Thank you, Alexander. Let me try to... I think there is still positive momentum in the backlog. It's true that it hasn't from when you made the rounding figures from... months to this, it's still 900, but it is now above 900 and we have added both the mentioned Telstra deal in it. There are also some quite interesting other tests ongoing, which is not yet in the backlog. One is just out here with the PLEO program from the US military side, and you probably also see some of the press on the UK testing remote islands with OneWeb. This is not confirmed in terms of numbers. The deals are confirmed, but not in terms of numbers in the backlog. So we are evolving, and we hope within the next couple of months to pass the $1 billion mark, but we're not quite there where it rounds up to $1 billion rather than down to the $900 million. Also, I'd say focus has shifted a little bit into revenue recognition rather than just building backlog. I think that's also the phase we are at with OneWeb, that we have switched more into getting customers go live, and that is starting to respond also to your second question around terminals. As you know, we work with multiple terminals and with a B2B focus, which typically means testing of the different terminals first naturally by ourselves to make sure it works in the network, but then also on a couple of test sites with customers. And having the right terminals available and going through a couple of months of tests is a typical sales process with a B2B customer. And the right terminal availability and also evaluation of the terminals after, given that we have multiple terminals to choose from, is probably what has taken a little bit more time. Then there's also a few segments where terminal supply has been delayed in terms of flat panels. They are now there, but again, we need to get them out and get them tested with the customers first. So that's why we take some more prudence on the revenue ramp-up and also is directing a little bit more sales attention to actually ramping up revenues and getting customers installed over the next month.

Very clear. Thank you very much, Eva. And just a quick follow-up on Iris. Can you put any flesh on the bone there on what kind of role you could play What is the opportunity there? Do we have anything new on that front? Thank you.

I think Iris Squared and the SpaceRise consortium, which is what we call the consortium with actually quite a lot of large players, ourselves, UTELSAT, SES, ISPASAT, Airbus, and TELUS as part of the SpaceRise, but also with close collaboration with Orange, Deutsche Telekom, OHB, Telespacio. So a very large consortium working together. We are on the last almost days of finalizing the offer. The offer needs to go in on August 7th. So that is next weekend. We need to be done with it. So we're in the process of defining the architecture and the overall elements of such a multi-orbit, highly secure constellation. and that's going in a week's time to Brussels. And then we expect to start the dialogue with Brussels around it. The calendar is still a focus on getting to a last and final offer in November, December, and then a choice from Brussels in February next year. Of course, that continues to be a quite ambitious timeline in terms of... such a large public sector buying, especially when you see technology this complex and this innovative. So it's not a given that there will be no modifications of this, but right now we are on track to be able to hand in a first-round proposal end of next week in the consortium.

Excellent. Thank you very much.

Thank you. And we take our next question from Roshan Ranjit with Deutsche Bank. Please go ahead.

Good morning, everyone. Thank you for the questions. I have three, please. Firstly, on CapEx, you had a very good CapEx control this year. Your guidance, excuse me, for not exceeding 400 million for the next coming years, I guess, averaging, you've only got one launch. coming up in the near term. So is there, I guess, upside to that number? I mean, 400 seems quite high given where you've been trending so far. Secondly, just following up on the terminals question, is there a risk to standalone neutral SAT supply of terminals? Because I know you've previously said that you are increasingly distributing terminals and looking to build out the channels that way. And finally, just on the C-band, I noticed that you will be getting the C-band cash in your first quarter 24. Is that earlier than expected? Have you gone through all of the checks with the FCC? So is there anything different why users are receiving their cash earlier than peers?

Thank you.

We can stop you on the C-band.

Yeah, yeah. So, well, on the CBAN, initially, the cash was planned to be received, but when I say initially, that was last year. We initially planned to receive the cash by the end of fiscal year 23. It's been postponed, I mean, mainly due to the administrative and follow-up of the American authorities. But no, I mean, it's clear that we've not gone through all the necessary, I mean, path and we should be receiving this cash hopefully by the end of September.

So that is probably, we'd expect it to do it in this first half, and getting it in the start of this first half might be a little bit early, but we had expected to get it before in this first half of financial year. Coming back on your CapEx guidance, less than 400 million, you're right, we have not been a close to four hundred million for the last couple years and this is of course utilsat on a stand-alone basis and so we do think that we will on a stand-alone basis be well within that capex guidance however I do think we'll have a very different picture post combination with OneWeb where we are guiding a 710.5 to 875 CapEx per year given the startup investment in Gen 2 of OneWeb. Finally, on terminals, utils are standalone terminals. It's mainly a question of terminals for connectivity. Those are in good dialogue and is ramping up. It's clear that given that we need to migrate quite a lot of customers from Connect to Connect VHTS, that's a change of terminals, but that is in good process. I think some of the challenging on the supply of terminals is more on the one website.

That's great. Thank you very much.

Thank you. And as a reminder, ladies and gentlemen, please press star 1 to ask a question over the phone.

There is a question from Samika Saab from Exxon BNP. Can you please provide an update on the latest developments regarding Iris Square? Could you also discuss how much of Utilsat 10b has already been leased?

On IRIS Square, Samir, be happy. I think the development, I covered a little bit in the answer to Alexander's question, but the development is that we are now in good progress to be able to hand in this first proposal to Brussels by the end of next week, and those are in good dialogue, and it's been very intense work with a relatively large integrated project team. that's been working on this with both a very large technical part and, of course, also the governance part. On E10B, we have actually solid pre-commitment from Intelsat and Panasonic on quite a lot of the additional capacity. There's also part of E10B which is replacing legacy businesses. And then finally, as I just announced, We just literally 48 hours ago signed an additional contract for maritime mobility with Marlink. So that brings E10B in a very solid position. The Marlink contract for over four years, so that is to be flowing into our backlog as of next month.

Thank you.

And if there are no further questions at this time, I'd like to turn the call back over to you for any additional or closing remarks. Thank you.

Well, thank you everybody for joining this UTILSAT update call. There's a quite good chance that it will be the last one as a UTILSAT standalone basis. Of course, there's never any guarantee when it comes to regulatory approvals. but as we guided, we do hope to be able to close the merger with OneWeb within the next quarter, which of course also means that we'll be in the next update seen as a joint company. That naturally will change a little bit of things. We tried to give you a good feeling for how the combined entity will look also in this call, but we're looking very much forward to the first call as a combined entity next time around. In the meanwhile, feel free to get back to Thomas or anybody else if you come up with detailed questions once you've had another coffee or two and find additional questions to ask, and we'll try to get back to you. Other than that, for those of you lucky enough to be on French holiday schedule, you might be on your way on holiday, so enjoy the holidays. And for the rest, well, happy working. Have a great day.

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