Eutelsat Communications

Good day and welcome today. You just heard group half year 2023-24 results conference call. Please note this call is being recorded and for the duration of the call your lines will be on listen only mode. However, you will have an opportunity to ask questions at the end of the call. This can be done by pressing star 1 on your telephone keypad to register your questions. If you require assistance at any point, please press star 0 and you'll be connected to an operator. At this time, I would like to turn the conference over to Eva Bernicke, Chief Executive Officer, and Christophe Cordelia, Chief Financial Officer. Please go ahead. Thank you.

Good morning. Welcome and thank you for joining us for today's first half of UTILSAT 24 presentation. I'm Eva Bernicke, Chief Executive Officer, and I'm joined by Christophe, our CFO. So what are we going to do this morning? For today's agenda, we have four points. We have a bit the highlights of this past quarter and the sixth month. We go through our operational performance, then our financial performance, and then we'll come to the outlook and financial objectives. Let's start with the highlights of the past six months. First half operating verticals revenue stood at 571 million euros, confirming the return to top-line growth. This was underpinned by Utilsat's legacy business, thanks notably to the Utilsat 10B and Connect VSTS that gave us incremental capacity, as well as the inclusion of one-web businesses since the second quarter. Second quarter operating verticals continues this trend, revenues up by 3.9% on a like-for-like basis and by 5.4% on a quarter-on-quarter. We delivered successful operational execution, notably with the entry into service of ConnectVHTS in September and UTILSAT-10B also in September, as well as the completion of the space segment of the one-way constellation. The UTILSAT and OneWeb combination is effective since very late September and the integration is progressing well and synergies are well confirmed. We're seeing commercial traction for OneWeb with further growth in the secured backlog as well as the activation of numerous key customer partnerships. And this despite the delay in the rollout of the ground segment that we flagged at the end of January. So we are progressing really well on design on the next gen OneWeb constellation, which focus on securing continuity of the current client service, as well as a stepwise capacity and functionality improvement. This will lead to a reduction in expected capex for the period 25 to 30. Let's go down a few of the key elements. Let me start by confirming that the GEO business is doing well. Looking at the GEO business, we're delivering absolutely in line with our expectations and we confirm the return to top line growth. This is thanks to incremental connectivity capacity that came into service with the UTELSAT-10B. It's located at 10 east and offering a visibility spanning Americas to Asia. It has two multi-beam HTS KU band payloads that are able to process more than 50 gigahertz of bandwidth, offering a throughput of around 35 gigabits. We have multi-year capacity commitments, both on maritime and in-flight connectivity with Panasonic, Intelsat, and also recently a deal with Marlink. The other one is a big connect VHTS, which is a KA band capacity of 500 gigabits. embarking in the most powerful onboard digital processor ever put in orbit. It allows capacity, allocation, flexibility, and optimal spectrum use. It does support the development of European fixed broadband and in-flight connectivity. Commitments on this satellite alone totals 450, with key customers that includes Thales, Orange, with its subsidiary Nordnet, and TIM. Elsewhere in the geo business, the second half is also in the video business, where the top line trend is expected to return to market average. But the big event, and I think I am telling nobody news here, is of course the combination with Utilsat OneWeb. Just stepping back and just reminding of the whole rationale behind the deal is very clear. Combining a legacy cash generative geo business with a high growth activity in low orbit that generates strong revenue growth. We're accessing a massive and still growing satellite connectivity market where the majority of growth is going to come out of the non-geo part of the segments. OneWeb is a truly unique asset. It is still one of only two LEO constellations, with the other one being Starlink, that has proven commercial and operational efficiency. Together, combining LEO and GEO assets makes us a really unique player that can actually provide the best of both worlds with the low latency of our LEO offering and the high capacity and flexible capacity of the GEO side. And finally, now three months into it, our integration is progressing well, and we validated the value creation and especially the synergies in this deal. So we're live. A major milestone was achieved when it was approved the 29th of September that we could combine UTILSAT and OneWeb. Since then, we've been focused on integrating the two companies as well as driving operational and commercial momentum. The space segment, that's the 650 approximately satellites, is fully up and running and delivering proven and expected performance. OneWeb's order backlog continues to grow. It now stands at €700 million. That is a conversion into Europe, as well as excluding the UTELSAT part of the backlog, but it continues to grow. And we continue to see commercial traction with deals activated with quite a few customers. Progress on the ground rollout is following some delay, but we track for a 90% coverage by mid-24. And of course, that excludes China and Russia, as has been previously confirmed. As well as confirming the synergies, what we're seeing in terms of revenues, distribution partners are actually starting to provide multi-orbit services with a combination of GEO and LEO, both in mobility, enterprise, and government. Cost synergies are fully on track, and we think we have scope even to exceed our original plans. As a reminder, the annual expected run rate was around 80 million euros pre-tax synergies from the merger. And then finally, CapEx synergies are also confirmed with the design of the next generation OneWeb constellation based on a stepwise capacity and functionality improvement that will lead to significant reduction in our original CapEx estimates. Starting with some of the commercial momentum we're seeing, several important contracts are live with key customers across main Leo applications. If we start with fixed data, you might have seen our announcement together with Telstra on Leo backhaul services in some of the remote areas of Australia. Paratus is a satellite connectivity service that combines you and Leo to address enterprises in remote part of South Africa. Autonomous is delivering Leo connectivity to applications in Saudi Arabia and across 15 countries in the Middle East and Africa. And then finally that one is enterprise and maritime LiU connectivity services across Australia. So very strong traction seen there. But when we move to the government segment, I think there's also some very interesting new developments. Changhua in Taiwan is serving the government with both fixed and mobility services. Airbus will be delivering fixed and mobility solutions across both government and commercial grade applications. And finally, Hughes, one of our longstanding partners also on the geo side, is also one of our major partners in government and mobility in the LEO services. And finally, coming to mobility, Speedcast, we see connectivity in both passenger and cruise markets, and IP access with a large fleet of LEO mobility solutions in the U.S., So across all three of our connectivity segments, we see very strong commercial traction on LEO, but also on combination of LEO and GU. We'll come back to the growth of these new segments in a minute. We see progress on the network coverage, and we are progressing on the rollout of especially the ground network. So this refers to the ground networks in terms of space and satellite coverage. The whole globe is covered, so there are no holes in the coverage. But in terms of the network ground coverage, we have now 30 gateways built, and we've secured coverage of the entire American continent, both north and south, as well as the southern hemisphere, most importantly, Australia and South Africa. By mid-24, that's calendar 24, coverage will be extended to cover gaps in the Middle East and Asia, as well as the North Atlantic, on track to meet our target of coverage of around 90%, including coverage of all the main markets. This is, of course, key to customers in those markets, and especially in mobility customers that are in the backlog, where near-global coverage is a prerequisite for activating mobility services. Meanwhile, the space segment is operational and delivering a high level of technical performance. Testing has validated robustness of the network with an HDS technology delivering up to 7 gigabits per satellite and a robust 4G core network developed with telecom industry leaders. We have a satellite failure rate below 1%, which is one of the best in the industries. We have better look angles leading to lower blockages, which you sometimes can experience when you have the low look angles. Finally, when you turn actually to what does the user experience, we see some very positive elements with global latencies of around 70 milliseconds. We see download speeds of up to 195 megabits and upload speed around 32 megabits. So we are supporting customers with fully managed service, both by our own teams, but mainly through distribution partners. We now have around 11 user terminals that are available to customers in the specific segments and that are fitting their specific requirements. And we are well advanced in also the LIU and GU combined user terminals, which we expect to start operating mid-24 with potential new use cases. Coming back to how this evolved in the future, we are progressing also well in how we look at the next generation OneWeb constellation, with potential solutions focused on especially customer service continuity and a stepwise improvement and enhancement of OneWeb services. This focus is informed by both operational and commercial dialogues in market, as well as the experience now that the constellation is fully in service. The next-gen will progressively embark both additional capacity and enhance functionality performances compared to the first-gen, with a scope to upgrade the constellation services and performances progressively. The cost of this approach is however lower than our previous estimates for the build-out in the one-web next-gen, so we are adjusting our mid-term CAPEX estimates. Our cash capex for 24 remains as expected in the range of 600 to 650 million euros. However, for the period 25 to 30, we expect cash capex after synergies in the range of 600 to 700 million euros on average per year. Previously, this was set slightly higher between 725 and 875 per year. I'll come back to some of these points, but first I just want to let Christophe give you a perspective on the operational and more importantly also the financial performance of this first half year. Just reminding everybody, it's a special year. It's six months where we have around three months of UTILSAT historic standalone and three months in the combined. So there's a lot of numbers floating around, and it can be a little bit hard to follow the numbers, but I'll let Christoph explain all of this to you. Over to you, Christoph.

Thank you, Eva. Good morning, everybody. So just as a reminder, as Eva said, all commentary is on a like-for-like basis, i.e. at constant currency and parameter. Reported indicators include one web since October 1st, 2023, and are compared to UTELSAT's H1-2223 performance on a standalone basis. Total revenues for the first half of fiscal year 23-24 stood at 572.6 million euros, down by 1.9% on a reported basis and up by 1% like for like. Revenues of the four operating verticals, that is to say excluding other revenues, stood at 571.1 million euros. They were up 1.2% on a like-for-like basis, excluding a negative currency impact of 18 million euros. Second quarter revenues stood at 298.7 million euros, up 3.7% like-for-like. Revenues of the four operating verticals stood at €298.6 million, up 3.9% year-on-year on a like-for-like basis, and up 5.4% quarter-on-quarter. Let's look at revenues in more detail. Video revenues represented 58% of revenues, stood at €331 million in the first half, down 8%. The other three verticals include a contribution from OneWeb, consolidated since 1st of October. Government services, 13% of revenues stood at €74.2 million, up 10.5%. Mobile connectivity, 12% of revenues, stood at 71.2 million euros, up 35.6%. And fixed connectivity, now 17% of revenues, stood at 94.6 million euros, up 9.2%. Other revenues amounted to 1.6 million euros versus minus 8.1 million euros a year earlier. This improvement reflected a negative impact from hedging operations of €2 million compared with €12 million a year earlier. Turning to video, first half revenues were down by 8% to €331.1 million, reflecting, first, the impact of the early non-renewal of the capacity contract with DigiTurk from mid-November 2022. Second, Low revenues in Europe related to volume reductions with certain resellers. And third, the effect of sanctions against Russia and Iran channel. Second quarter revenues stood at 167.6 million euros, down by 6.4% year on year, and up 1.9% on a sequential basis. This increase was partly due to a one-off contract of around 3 million euros in Latin America. Professional video revenues, which account for less than 10% of the video vertical, also decreased, reflecting ongoing structural headwinds. Looking ahead, the second half basis of comparison will no longer reflect the impact of sanctions against Russian and Iranian channels, nor digital non-renewal. Revenues are therefore expected broadly in line with the wider market trend of a mid-single-digit decline. Going to government services, revenues stood at 74.2 million euros, up by 10.5% year-on-year, reflecting the slightly better renewal rate of the fall U.S. Department of Defense campaign, above 80%. as well as the contribution of the EGNOS-G04 contract on hard birth 13G. Second quarter revenues stood at €40.7 million, up by 17.4% year-on-year and by 4.2% quarter-on-quarter. The second half would benefit from the full period contribution from OneWeb's LIO-enabled connectivity solutions, as well as the contribution from the above-mentioned EGNOS G04 contract and Hartberg 13G. As a reminder, this contract is set to generate €100 million in revenues over 15 years. First half mobile connectivity revenues stood at 71.2 million euros, up 35.6% year-on-year, underpinned by the entry into service of the high-throughput satellite Eutelsat 10B with significant pre-commitments, and the commercialization of the final beam on Eutelsat Quantum for a maritime mobility client. Second quarter revenues stood at €36 million, up 28.2% year-on-year and up by 0.2% quarter-on-quarter, reflecting the tougher basis of comparison due to the above-mentioned entry into service of incremental capacity during the first quarter. Over the full year, mobile connectivity is expected to see double-digit growth, driven by strong demand for both GEO and LEO-based connectivity solutions. First half fixed connectivity revenues stood at 94.6 million euros, up 9.2% year-on-year, mainly reflecting the entry into service of CONNECT VHTS, as well as a contribution from LEO connectivity. Second quarter revenues stood at €54.3 million, up 17.6% year-on-year, and by 23.7% on a sequential basis, mainly reflecting contracts that started from mid-October following the entry into service of Connect VHTS. This positive dynamic is expected to translate into double-digit growth for the full year on the back of Connect VHTS as well as the contribution from the LEO connectivity offer. Moving to backlog, it stood at 3.9 billion euros on 31st December 2023. compared to €3.7 billion a year earlier and €3.4 billion in June 2023, representing 3.5 years of revenues. The contribution of OneWeb's growing backlog is amounting to €700 million at the end of December 2023. Natural erosion of the geo-backlog, especially on the video segment, in the absence of major renewal. Video is accounting now for 46% versus 59% a year ago. This trend clearly illustrates the impact of successful telecom pivot strategy. Let's turn now to the financial performance, starting with profitability. Adjusted EBITDA stood at €365.6 million at the end of December 2023, compared with €419 million a year earlier, down by 12.7%. Operating costs were €52.2 million higher than last fiscal year, reflecting the impact of the consolidation of OneWeb. This was partially offset by a positive perimeter effect from the disposal of the big blue retail broadband operations, as well as lower bad debt, especially in video business. The adjusted EBITDA margin stood at 64.1% at constant currency, 63.8% reported, versus 73% a year earlier. This is reflective of the progressive rebalancing of our business towards connectivity applications. Turning to the P&L, group share of net income stood at minus 191.3 million euros versus plus 51.9 million euros a year earlier. This reflected Other operating expenses negative of €183.9 million compared to a positive €34 million last year, mainly due to fair value adjustment of shares owned by Eutelsat before the combination with OneWeb. Higher depreciation of minus €316.1 million versus minus €233.8 million a year earlier, reflecting the perimeter effect from OneWeb, as well as higher in-orbit and on-ground depreciation. We have fourth as a light, Hotbird 13, Hotbird 13G, UTSA 20, and Connect VHTS that entered into service between April and September 2023. And net financial results, negative 60.7 million euros versus negative 56 million euros a year earlier, reflecting the higher interest rates, partly offset by favorable evolution of foreign exchange gains and losses. Corporate income tax is a gain of 28.5 million euros versus a tax cost of 0.8 million euros last year, reflecting the recognition of positive deferred tax on the C-band payment as well as a reduction of the French corporate tax rates. Higher income from associates, negative 23 million euros, reflecting the contribution of the stake in OneWeb for the first quarter, which last year was from July 2022 onwards. Cash CapEx reaches 224 million euros versus 194 million euros last year. It is reflecting the perimeter effect from the consolidation of OneWeb. It's also not representative of the decrease in CAPEX, reflecting phasing of satellite programs delivery last year for both UTELSAT and OneWeb. At the end of December 2023, net debt stood at €2,619 million, down €146 million versus end of June 2023. It reflected the receipt of phase 2 of CBAN proceeds, net of tax for €330 million, a negative impact from our financing activities, mostly related to structured debt combined with a decrease in cash flow from operating activities due to the consolidation with OneWeb. As a result, the net debt to adjusted EBITDA ratio stood at 4.13 times compared to 3.55 times at the end of December 2022 and 3.35 times at the end of June 2023. The average cost of debt after hedging stood at 3.16%, 2.7% in H1 2022-2023. the weighted average maturity of the group's debt stood at 3.0 years, compared to 4.1 years at the end of December 23. Earned round credit lines and cash stood at around 1.8 billion euros. Now, back to Eva for a comment on the outlook.