PARIS – Satellite fleet operator Eutelsat on July 29 sought to reassure investors that the bad news it delivered in May was a fair assessment of its markets’ short-term contraction, mid-term stability and longer-term growth and not the beginning of a long downward spiral.
Releasing its annual financial results for the year ending June 30, Paris-based Eutelsat confirmed its May forecast that growth in the just-ended fiscal year would be followed by a revenue decline of up to 3 percent for the year ending June 30, 2017, followed by a stable year and then a return to growth for the year ending in June 2019.
The company also recommitted to paying cash dividends while maintaining its EBITDA margin – earnings before interest, taxes, depreciation and amortization – above 75 percent of revenue during the period. The company’s video business, which accounts for 64 percent of total revenue, was up 2.3 percent in the 12 months ending June 30.
High-definition television channels now account for 13.6 percent of EUtelsat’s 6,342 channels, compared to 11.9 percent a year ago, with ultra-high-definition programming, which takes much more satellite bandwidth, on the horizon.
In the short term, the company is focused on improving cash flow by reducing capital spending and refinancing its debt to take advantage of today’s exceptionally low interest rates.
Eutelsat recently issued 500 million euros ($550 million) in bonds carrying a 1.125 percent annual interest rate. These funds will be used to retire 800 million euros in debt carrying a 4.125 percent interest.
Sale of Hispasat shares may take some time; depends on Abertis
In a conference call with investors, Eutelsat Chief Executive Rodolphe Belmer said Eutelsat’s planned divestiture of its 34 percent ownership in Spanish satellite fleet operator Hispasat likely will take months to achieve and requires the cooperation of Hispasat’s main shareholder, Abertis of Spain.
He insisted that Eutelsat has the full right to exercise its put option to sell its Hispasat shares under the Hispasat shareholder agreement, and that an independent valuation of Hispasat should be completed before the end of the year.
Belmer said Eutelsat’s dividend payments will be financed from operating cash flow and will occur regardless of how long it takes to complete the Hispasat transaction. Hispasat reported revenue 219.6 million euros in 2015.
Ka-band broadband venture with ViaSat yet to come
Eutelsat and ViaSat Inc. of the United States are negotiating a joint venture to develop Ka-band broadband satellite services for consumer and mobile applications. Belmer said it was a complicated transaction with technical and administrative details that will take time to resolve. He said it would take several more months to conclude.
Eutelsat’s own consumer broadband business is increasing its revenue, if only slightly, despite a decline in the subscriber count. Eutelsat said its Ka-Sat satellite, whose fixed beams over the most-promising areas of Western Europe have been full for several months, counted 181,000 subscribers as of June 30, down from 185,000 a year ago.
The company did not break down the revenue attributed to consumer broadband, but Belmer said the business is not suffering from downward pressure on prices. The problem is simply a lack of capacity in the regions of highest demand.
For now, Eutelsat does not have a clearly outlined strategy for adding Ka-band capacity in Western Europe and is focusing on developing the business in Eastern Europe. Belmer said it would take some time to tailor commercial Ka-Sat products and a distribution model for the Eastern European market.
Belmer reiterated Eutelsat’s view that the real takeoff of consumer broadband will come with the next generation of very-high-throughput satellites that can deliver bandwidth volume to compete with fiber networks, at a cost that subscribers can afford. He said this would likely occur in 2020-2021.
Eutelsat is debuting consumer and small-business satellite broadband in both Russia and Africa. The African project, conducted in partnership with Facebook, will begin by leasing Ka-band capacity on the Amos-6 satellite owned by Spacecom of Israel and scheduled for launch in September.
Government services: Has U.S. military demand hit bottom?
Eutelsat’s government services division fell by 7.5 percent during the 12 months ending June 30, to 199.9 million euros, representing 13 percent of Eutelsat’s portfolio.
Like others doing business with the U.S. Defense Department, Eutelsat is facing lower overall contract prices, and lower renewal rates, that as yet have not been offset by new business elsewhere.
“The worst is behind us,” Belmer said, adding that the presence of high-throughput satellites, which has the caused corporate data network market to fall for many satellite operators, is not a factor in the government market – at least not yet.
