Eutelsat, amid revenue decline, says year will rebound

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WASHINGTON — A slow start for Eutelsat’s Konnect Africa broadband venture and losses in activities beyond the fleet operator’s core business contributed to a 4.4 percent decline in revenue during the last half of 2018.

Paris-based Eutelsat reported 658 million euros ($745.7 million) in revenue for the six months ended Dec. 31. EBITDA, or earnings before interest, taxes, depreciation and amortization, was down 5.1 percent to 518 million euros.

Eutelsat has for the past three years been striving to return to growth, having divested from non-core businesses such as Spanish fleet operator Hispasat for 302 million euros, while lowering its annual capital expenditure cap from 500 million to 400 million euros. The company expects to return to “slight growth” in its next fiscal year, which starts July 1.

Eutelsat’s Other Revenues, which covers anything not related to capacity sales — such as frequency consulting and engineering services — surfaced as a volatile business line last May when it swung from 7.5 million euros in a quarter to just 100,000 euros year over year. The company said then it would stop forecasting Other Revenues due to the small segment’s unpredictability.

Other Revenues declined again during the last six months of 2018 to -2.3 million euros, persisting as a pain point. In a Feb. 15 earnings call, Rodolphe Belmer, Eutelsat’s chief executive, said Eutelsat recently signed a “substantial” engineering contract that will stabilize Other Revenues.

Excluding Other Revenues, Eutelsat’s total revenue decreased 2.4 percent — a figure Belmer said should rebound over the next six months as new contracts, notably in television broadcasting and mobile broadband, ramp up.

“We maintain our view that our revenue trajectory for the fiscal year as a whole will be broadly stable even though the first half was at minus 2.4 percent,” Belmer said.

Eutelsat’s Konnect Africa broadband business, now active in 19 countries, had a slower than anticipated start because of “logistical issues typically associated with opening businesses in emerging markets,” Belmer said. Konnect Africa started service in late 2018. Belmer said the service should also generate more revenue later this year as the company establishes a network of distributors across the continent.

Fixed data, which includes connecting businesses and remote locations, continued to face price pressure from other satellite operators, with Latin America being the primary point of decline.

In video broadcasting, Eutelsat’s largest business area by revenue, Belmer said it was declines from the company’s Fransat free-to-air television platform and from professional video services, such as satellite news gathering trucks, not a larger trend that drove revenues down 2 percent to 432 million euros. Belmer said broadcast counts for 90 percent of Eutelsat’s video business and remains “broadly stable.”

Eutelsat is now able to go direct to broadcast customers in the Middle East and North Africa thanks to its 2017 acquisition of Bahrain-based Noorsat — a change Belmer said enables the company to raise prices in the region. The company has also gained new broadcast customers in Afghanistan, Ethiopia and Slovenia, he said.

Belmer said Eutelsat is discounting prices to customers migrating from standard definition to high-definition television channels for the first two years. The promotional pricing is helping the company reach its goal of having 40 percent of all channels in high definition in two years. Of the 7,067 channels Eutelsat broadcasts, 21 percent are in high definition, which requires more capacity than standard definition.

On Hotbird, Eutelsat’s most valuable broadcast satellites, the company’s goal is for 50 percent of all channels to broadcast in high definition in two years. The Hotbird trio of satellites broadcast 978 channels as of December, down 24 channels, but 35 percent are now in high definition, a five percent increase over last year.

Belmer defended video, which is 66 percent of Eutelsat’s revenue, as a strong base while the company prepares for growth in satellite broadband.

“The core of our return to growth strategy lies in the connectivity segment,” he said. “We think that there is a very substantial latent demand for high speed internet everywhere in every region where telcos do not go with their terrestrial technologies.”

Belmer said a 15-year capacity contract from China Unicom worth 100 million euros for in-flight connectivity services began payment this January and will be reflected in coming quarters. Eutelsat also won a “blue chip” maritime customer that prefers anonymity, he said, constituting a rare win for Eutelsat in a market where it is not very active.

Africa and Europe are Eutelsat’s main regions for satellite broadband investment. The company is leasing capacity on Emirati fleet operator Yahsat’s Al Yah 3 satellite for Konnect Africa while preparing for the launch of a dedicated satellite called Konnect that is being built by Thales Alenia Space for a launch in the second half of this year on an Ariane 5 rocket.

Originally intended for Africa, Eutelsat decided last year to shift some beams on Konnect to Europe so it is better positioned to compete against former partner Viasat of Carlsbad, California.

Belmer said Eutelsat is testing market approaches with its KA-SAT satellite and Yahsat’s Al Yah 3 satellite in preparation for the ramp up in its own capacity, first through the 75 gigabit-per-second Konnect, and then the 500 gigabit-per-second Konnect VHTS, which is slated to start service in 2022.