Release Date: August 09, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Eutelsat Communications (ETCMY, Financial) reported total revenues of €1.213 billion, up by 7.2% on a reported basis and 5.6% on a like-for-like basis.
- The company successfully closed the Eutelsat-OneWeb combination, creating the first true GEO-LEO integrated player.
- Strong commercial traction with major multi-application contracts, including a seven-year deal with Intelsat and multi-year contracts with Viasat and Yahsat.
- The backlog increased to €3.9 billion, up 15% from the previous year, reflecting strong commercial momentum.
- Successful refinancing of the November '25 bond, enhancing financial stability.
Negative Points
- Adjusted EBITDA decreased by 12.9% to €719 million, reflecting higher operating costs due to the consolidation of OneWeb.
- Net debt to adjusted EBITDA ratio increased to 3.79 times from 3.35 times the previous year.
- Video revenues, which represent 54% of total revenues, declined by 6.8%, reflecting a secular market decline.
- Group share of net income turned negative at €310 million compared to a positive €315 million the previous year.
- Delays in the rollout of ground infrastructure and regulatory approvals in key markets like India and Thailand are impacting revenue growth.
Q & A Highlights
Q: Could you help us understand the building blocks for your revenue target for this year? Why is the revenue target lower than expected?
A: We are still in the integration phase of our merger with OneWeb. The ground infrastructure of OneWeb will be completed by spring 2025, which is causing a delay in the full operational growth of LEO services. Connectivity growth will be driven by LEO services next year, but the slower rollout of ground infrastructure and market access is impacting revenue growth. Additionally, there is less new GEO capacity coming online next year.
Q: How should we think about the economics and growth path from your combination with OneWeb?
A: We are adopting a gradual approach to the procurement of the next generation of OneWeb. Future investments will ensure continuity of our business with our customers and adapt the ramp-up of LEO capacity to opportunities and technology maturity. We aim to remain within our leverage range compatible with our debt covenants and target a strong return on capital for our shareholders.
Q: Is the flat revenue in fiscal '25 due to the slower rollout of ground networks and regulatory agreements?
A: Yes, the slower rollout of ground networks and regulatory agreements are contributing factors. We have full satellite coverage, but the ground infrastructure and market access are still being completed. Additionally, there is less new GEO connectivity capacity coming online next year, and video revenues are expected to decline by mid-single digits.
Q: What is your view on the IRIS2 project and the potential for a hosted payload system?
A: We are part of the SpaceRISE Consortium and are working towards an optimized proposal with the European Commission. While there has been speculation about a hosted payload system, we are still working on the original tender offering and structure. The most important objective is to ensure European sovereign capacity.
Q: Are you seeing any pressure in terms of building your backlog due to new LEO networks from China?
A: We expect no more than a handful of global LEO networks due to the high cost and spectrum priority issues. OneWeb has the first priority in the Ku-band, and new constellations will have to coordinate with existing ones. We see our value proposition as providing an alternative sovereign capacity to American and Chinese constellations, which is attractive to many customers.
Q: How are you tracking to the previously given synergy targets, and what level of efficiencies can we expect?
A: We are tracking well on both CapEx and OpEx synergies, and we see strong revenue synergies from the joint sales force and go-to-market approach. Most of the ramp-up in OneWeb revenues next year will be from service revenues, not terminals, which will help maintain our EBITDA margin.
Q: What is the status of the ground infrastructure and leaseback considerations?
A: We are still contemplating the sale and leaseback of ground infrastructure and have seen a lot of inbound interest from infrastructure funds.
Q: How should we think about the delays in landing rights authorization in markets like India and Thailand?
A: The delays are primarily administrative as regulators get comfortable with the new LEO technology. We are working closely with local distributors and authorities to expedite the process. These delays are not reflective of competitive landscape issues but rather the complexity of regulatory approvals.
Q: What are your expectations for the coming year in terms of financial performance and strategic goals?
A: We expect continued connectivity growth driven by the ramp-up of OneWeb LEO service revenues. Video revenues are expected to decline by mid-single digits. Adjusted EBITDA will be slightly below the level of financial year '24 due to the full operational run rate of OneWeb costs, but we will implement further cost-saving measures. Gross CapEx for '24-'25 is expected to be between €700 million and €800 million.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
