8/5/2022

speaker
Operator
Conference Operator

question. I will now hand over to your host, Mr. Richard Whiting, Head of Investors Relations, to begin today's conference. Thank you.

speaker
Richard Whiting
Head of Investor Relations

Thanks. Good morning, everyone. Thanks for joining this analyst and investor call for our half-year results. This morning's presentation was uploaded along with the press release to the investor section at SES.com if you don't already have it. As always, please note the disclaimer at the back of the document. In a moment, Steve Collar, CEO, will present the main business highlights, followed by Sandeep Jalan, CFO, to cover the financials in more detail. After some closing remarks from Steve, we will take your questions. With that, I hand over to Steve.

speaker
Steve Collar
Chief Executive Officer

Thanks very much, Richard. Good morning, everyone, and thanks for joining us this morning, and hope that you are all enjoying the summer. I'm going to start on page three with the highlights, and look, I'm really pleased with the performance of the business in the first half. We've delivered a very solid set of results with the business in good shape, on track to deliver on our financial outlook and objectives for the year, and making really good progress on our strategic objectives as well in one of the busiest years on record for SES. Revenue of 899 million euros was 3% up on a reported basis, while adjusted EBITDA of 545 million euros was flat year on year, reflecting a solid EBITDA margin and excellent control over discretionary spend. We have good visibility towards full year with over 90% of our revenue contracted and we fully reaffirm our 2022 outlook. Our networks business grew in the first half by 2% and with growth accelerating in the second quarter. We've signed some nice deals in the first half that will contribute to ongoing growth through the year. While in video, similarly to our performance in 2021, we've got the majority of our business done early in the year, securing important renewals and executing well in core markets such as DACH, meaning that we'll only have limited business left to secure and good visibility towards our full-year outlook. The combined backlog for SES17 and O3BM Power is continuing to grow, with $130 million added since the start of 2022, taking our total backlog to $930 million. It feels great to have SES17 in operation above the Americas, delivering services for our customers and meaningfully ahead of other KA high-throughput satellites planned for the region, and at a time where both the aero market and cruise market are recovering rapidly post the COVID environment. Our O3BM power satellites have entered final testing and will launch all six of the initial Constellation this year, with service introduction expected in Q2 2023. This is a game-changing investment for SES and will be a major component in driving our business for the next decade, particularly in the high-value, high-flexibility and high-throughput segments, and our recent wins in cruise underscore the right to win that we have created with our differentiated infrastructure and capabilities. This is perhaps even more true in the government segment, and I'm delighted that this week we've closed the acquisition of DRS Global Enterprise Solutions As I've said previously, I'm a huge fan of this business. It's one that we proactively selected as a key target and one that fits well with our value proposition, our network capabilities. It actually expands significantly our value proposition towards government customers and end users, and you'll be hearing more about this combined business going forward, a business that will be 50% of our network's business and 25% of our global revenue. Lastly on this slide, our C-band execution continues to be strong with clearing proceeds proceeding ahead of schedule and the successful launch of SCS22 in the quarter providing real momentum. We've received our first significant reimbursement payment and we're well on track to capture the $170 million of additional gross cash proceeds from our agreement with Verizon, having already completed more than half of the clearing. So with that summary, I'll move fairly rapidly through the remaining slides, starting on page four with video. So the trajectory of our video business remains fully consistent with our expectations, with a decline of 5% year-on-year, including the termination payment from Nordic Entertainment, or NENT, booked in Q1, which keeps us whole from a revenue perspective in the Nordic region for 2022. The end of our wholesale agreement with DISH in the US in November last year is the other key driver in year-on-year comparisons and will wash through by the end of this year. Pricing on renewal continues to be stable to increasing, reflecting the pricing power earned from having the largest video neighborhoods in the industry and leading penetration of high definition. More than 20% of our video contracts and revenues benefit from indexation clauses. As I said, we've got a lot of good work done early in the year with €150 million of renewal revenue added to backlog in the first half, most notably the latest extension signed with Sky UK in a deal valued at €85 million on the back of a €90 million deal that we announced with Sky last year. In Germany, our HD Plus consumer platform continued its good momentum from last year and is now truly a hybrid platform with the launch of our HD Plus IP and HD Plus to-go products. Our subscriber base remains stable to growing, and while we remain vigilant, we see no discernible impact from rising inflation in Europe. The early work done and ongoing delivery in our consumer business means that we have good visibility to our full-year outlook in video. More than 90% of our outlook contracted. And given that our consumer business renews monthly or quarterly, this reflects a very high percentage of non-HD plus business secured for the year. So onto networks on page six, where the sustained and positive deal flow is translating into revenue acceleration with Q2 growth of 4% on both the year-on-year and quarter-on-quarter basis. Overall in H1, that means an uplift of 2% year-on-year driven by excellent performance in mobility and fixed data, while the new wins we've seen in government are not fully compensating for headwinds caused by the rapid withdrawal from Afghanistan in Q3 last year. Double digit growth in the first half in mobility is on the back of the ongoing recovery in cruise, where we're adding new ships and new brands to the customer base, but also renewed demand for bandwidth in commercial aviation and growth in our commercial shipping business. In fixed data, we're growing thanks to the expansion of mobile backhaul solutions to support telcos and carriers in Asia and Latin America, as well as capturing new cloud revenues and opportunities. We continue to stand out among our peers in delivering growth in fixed data, and I believe this reflects the differentiated solutions that we bring to the market. This will accelerate further with the implementation of ARSA on SES17, who have taken all of the capacity over Argentina, and later with the introduction of O3VM Power. SES17 will be the main growth driver ahead of O3VM Power, and this is a good segue to page six and the key deals signed in the first half across our primary growth driving investments. Getting SES-17 on station and serving customers is significant for our business, particularly as we've secured an important time-to-market advantage versus other high-throughput satellites to be launched into the Americas over the next few years. We're transitioning the Thales in-flight network across onto SES-17 as we speak, and performance of the satellite and network is awesome. On O3B Empower, the first two satellites are in the final stages of testing. As we can see in the picture here, this is a fully assembled O3 Empower satellite heading into the thermal vacuum chamber. And we've got three launches scheduled from the Cape, firm launches with SpaceX for the initial constellation this year. We've had to be patient for the arrival of O3B Empower, but we're building this capability for the next two decades of growth for SES, it being scalable, flexible, and the highest performing in the industry now or in the future, and expected to start delivering services in Q2 2023. The flexibility and unique positioning of both of the MPOW was highlighted with the recent NASA award, where we'll be using our constellation to relay high-performance data from Earth-sensing satellites, something that MEO and MPOW are incredibly well suited for, and opens a new market for us in other high-end data relay in space, leveraging our MEO platform. Combined backlog for SES17 and O3BM Power is up 16% year-to-date at $930 million, with our anchoring deals with GEO on Empower, RSAT on SES17, two new cruise customers, two new fixed data networks in the Americas, and a showcase deal to serve offshore oil and gas and mining in EMEA and Asia. Turning to page seven and the really good news earlier this week of the closing of our acquisition of DRS Global Enterprise Solutions, an acquisition that's been over 18 months in the making. Over decades, the GES team has forged a reputation for delivering solutions to meet and exceed the needs of some of the most demanding of U.S. government customers and in some of the hardest places on earth to deploy services. And together with our own government solutions team in the U.S., we represent, I believe, the two best service providers integrated and trusted partners for the U.S. government. The two businesses, when combined, will create a scaled solutions provider and the number one trusted partner serving the multi-orbit satellite communications need of the U.S. government and supporting missions anywhere on land, at sea, or in the air. And it's incredibly well-timed with the launches of both SES17 and in particular O3BM Power, 40 to 50% of whose revenue we expect to come from government solutions. The combination of DRSGES with SESGS will unlock 25 million of annualized run rate synergies with networks increasing to around 50% of our overall business equal to video and government will represent half of this as our largest business segment in terms of revenue on the network side. Given the closing only a couple of days ago, the financials from Global Enterprise Solutions acquisition are not included in our reported numbers today, but will be as of Q3. And finally, for me on page eight, I think I promised you that we show you this slide when we showed you this slide last quarter that you can expect to see green ticks appearing as we execute on one of the busiest years in our history in terms of delivery on key strategic projects. And that's very much the case this quarter with SES 17 on station and serving customers. SES 22 launched and we've confirmed today that it's in service and we will begin transitioning customers as early as next week. The closing of the GES acquisition and more than 50% of the additional clearing for Verizon already completed. Next up, another CBAN launch at the end of September followed by three O2D Empower launches in Q4. Great progress and super pleased with the way that the business is executing. and firing on all cylinders. And with that, I'll hand over to Sandeep.

Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

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