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Eutelsat Communications: Third Quarter and Nine Month 2017-18 Revenues

May 14, 2018

PARIS--(BUSINESS WIRE)--May 14, 2018--Regulatory News:

Eutelsat Communications (Paris:ETL) (ISIN: FR0010221234 - Euronext Paris: ETL) today reported revenues for the Third Quarter and Nine Months ended 31 March 2018.

Revenues for the three months to 31 March 2018

Rodolphe Belmer, Chief Executive Officer, commented: “In the third quarter, the overall revenue trend of our five operating verticals improved further at -1.1% after -1.8% at the half-year stage. Video continued to progress, notably with improving trends at our HOTBIRD video position, while in Government Services the outcome of the latest US Department of Defense renewals was positive once again, at above 95%. On the other hand, ‘Other Revenues’ are running behind expectations following the outturn of the Third Quarter.

“We are working on a handful of active ‘Other Revenues’ opportunities in the pipeline which would enable us to land at the low end of our Full Year total revenues objective of -1 to -2%. However, in the event that none of these ‘Other Revenues’ materialize in the fourth quarter, the decline in revenues could be up to c. -3.5%. This has no impact on our other objectives for the current and following two years which are fully confirmed.

“The year to date has seen significant headway on our strategic roadmap. In particular the procurement of KONNECT VHTS, represents a major milestone in our growth strategy in Connectivity and comes with major multi-year distribution commitments with Orange and Thales. Elsewhere, the disposal of our stake in Hispasat will contribute to accelerating our deleveraging in line with our commitment to financial optimisation.”

1 Evolution of Revenues at constant currency and perimeter, excluding Other revenues. 2 At constant currency and perimeter. The variation is calculated as follows: i) Q3 2017-18 USD revenues are converted at Q3 2016-17 rates; ii) Q3 2017-18 revenues are restated from the net contribution of Noorsat. 3 Other revenues include mainly compensation paid on the settlement of business-related litigations, the impact of EUR/USD currency hedging, the provision of various services or consulting/engineering fees and termination fees.

RECENT HIGHLIGHTS

Since the start of 2018, Eutelsat has made further headway on its strategic roadmap with:

The procurement of KONNECT VHTS, a major milestone in the Group’s growth strategy in Connectivity with significant multi-year distribution commitments with Orange and Thales and representing the optimum solution from a commercial, technical, financial and operational perspective; Closing of the sale of the Hispasat stake for €302m, an important step in the rationalization of the Group’s portfolio, maximizing cash and accelerating deleveraging; Landmark MoU with China Unicom to address the satellite communications market in the framework of the “Belt and Road” initiative, followed up by the commercialization of the remaining HTS capacity on EUTELSAT 172B to UnicomAirNet, representing a backlog of over $100 million; Several other commercial highlights including: In Government Services, the favourable outcome of the Spring 2018 renewal campaign with the US Department of Defense with a renewal rate above 95%;Further contracts secured in Government Services at the 174° East orbital position following the relocation of EUTELSAT 172A;The reservation of a significant portion of the capacity on EUTELSAT QUANTUM by Peraton, meaning the satellite is now largely reserved;On HOTBIRD, a multi-year capacity agreement with Mediaset to accelerate its transition to High Definition as well as a multi-year, multi-transponder renewal with TVN, one of Poland’s leading broadcasters.

THIRD QUARTER REVENUES 4

Third Quarter revenues stood at €337.4 million, down 3.3% year-on-year at constant currency and perimeter. On a reported basis, they were down 7.4% reflecting a negative currency effect of five points and a positive perimeter effect of one point (acquisition of Noorsat 5 ). Excluding ‘Other Revenues’, the topline declined by 1.1% at constant currency and perimeter, reflecting an improvement in trend since end-December (-1.8%).

Quarter-on-quarter, revenues were down by 1.8% on a like-for-like basis and by 2.9% on a reported basis and, the decline reflecting the evolution of ‘Other Revenues’.

Core businesses

Video Applications (67% of revenues)

Third Quarter revenues amounted to €225.0 million, down 0.2% year-on-year. Broadcast revenues are now stable, reflecting notably improving trends at HOTBIRD. Professional Video continued to decline due to ongoing pressure on contribution services.

On a quarter-on-quarter basis, Video returned to slight growth (+0.2%) with Broadcast revenues up 0.5%, partly offset by lower Professional Video.

At 31 March 2018, the total number of channels broadcast by Eutelsat satellites stood at 6,880, up 8.2% year-on-year. HD penetration rose once again, representing 19.7% of channels compared to 16.6% a year earlier, or 1,358 channels, up from 1,057 a year earlier (+28%).

Government Services (11% of revenues)

Third Quarter revenues stood at €38.0 million, down 2.3% year-on-year, reflecting the carry-over effect of previous renewals with the US Department of Defense.

Quarter-on-quarter, revenues were down by 1.5%.

The outturn of the latest round of contract renewals with the US Department of Defense (Spring 2018) was encouraging once again with a renewal rate of above 95% in value.

4 The share of each application as a percentage of total revenues is calculated excluding “other revenues”. Unless otherwise stated, all growth indicators are at constant perimeter and currency. 5 Noorsat is consolidated from October 2017.

The fourth quarter will reflect the negative base effect of a positive one off recorded in the fourth quarter of last Fiscal Year. Beyond this, revenues will include the effect of these positive renewals as well as the ramp up of additional multi-transponder contracts at the 174° East position.

Fixed Data (10% of revenues)

Third Quarter revenues at €34.9 million, down 9.0% year-on-year.

They continued to reflect ongoing pricing pressure in all geographies and the absence of significant incremental volumes at this stage.

Quarter-on-quarter, revenues were down by 1.6%.

Connectivity

Fixed Broadband (7% of revenues)

Third Quarter revenues stood at €21.5 million, down 7.7% year-on-year and by 0.7% Quarter-on-Quarter.

This reflected lower revenues at European Broadband in a context of scarcity of available capacity in Western Europe, and slower than hoped-for progress by the retail joint-venture with ViaSat.

In this context we are refocusing our efforts on the wholesale strategy. In addition, the recently completed management line-up of experienced professionals are working to optimize conditions for the arrival of significant incremental capacity in the next couple of years, starting with the Al-Yah-3 capacity for the African Broadband service in August 2018, to be followed by the KONNECT 6, and KONNECT VHTS satellites in 2020 and 2021 respectively.

Mobile Connectivity (5% of revenues)

Third Quarter revenues stood at €17.9 million, up 17.9% year-on-year, reflecting the full-quarter effect of EUTELSAT 172B - with capacity pre-sold to Panasonic - which entered service at end-November 2017, as well as continued growth on wide-beam capacity notably over the Americas.

Quarter-on-quarter, revenues were down 0.8%.

Other Revenues

Other Revenues amounted to €0.1 million in the Third Quarter, significantly lower than the €7.5 million recorded a year earlier and €5.4 million in the Second Quarter of 2017-18, and illustrating the lumpiness of this revenue line. Other Revenues in the pipeline are expected to materialize in the Fourth Quarter, although their level and timing cannot be ascertained at this stage.

OPERATIONAL AND UTILIZED TRANSPONDERS

The number of operational 36 MHz-equivalent transponders stood at 1,424 at 31 March 2018, up by 50 units compared with end-March 2017 reflecting mainly the entry into service of EUTELSAT 172B and the subsequent relocation of EUTELSAT 172A at 174° East. As a result, the fill rate stood at 66.8% at end-March 2018 versus 68.2% one year ago.

Net, two incremental transponders were utilized during the Third Quarter, reflecting notably new business in Government Services at 174° East and incremental volumes utilized at HOTBIRD.

Note: Based on 36 MHz-equivalent transponders excluding high throughput capacity (KA-SAT satellite, Ka-band HTS payloads on EUTELSAT 3B, EUTELSAT 65 West A, EUTELSAT 36C and leased on Al-Yah 2, Ku-band HTS payload on EUTELSAT 172B).

6 Formerly called African Broadband Satellite. 7 Number of 36 MHz-equivalent transponders on satellites in stable orbit, back-up capacity excluded. 8 Number of 36 MHz-equivalent transponders utilized on satellites in stable orbit.

BACKLOG

The order backlog 9 stood at €4.6 billion at 31 March 2018 versus, €4.7 billion at end-December 2017, reflecting natural backlog consumption and in the absence of significant renewals during the Third Quarter. Year-on-year it reflects mainly the impact of the integration of Noorsat (-€0.4 billion). 10

The backlog was equivalent to 3.1 times 2016-17 revenues. Video Applications represented 83% of the backlog.

NINE MONTH REVENUES

Revenues for the first nine months of FY 2017-18 stood at €1,034 million, down 5.0% like-for-like. On a reported basis, they were down 7.6% reflecting mainly a negative currency as the perimeter effect is close to zero (the impact of the acquisition of Noorsat 11 being broadly offset by the disposals of Wins/DHI/DSAT Cinema). Excluding ‘Other Revenues’, revenues were down 1.5% like-for-like.

Nine months to 31 March 2018

OUTLOOK 13

During the First Nine Months the revenue performance of the Group’s operating verticals continued to improve, with a run-rate of -1% in the Third Quarter. On the other hand, ‘Other Revenues’, (non-recurring and not related to the commercialization of capacity and hence less predictable by nature), are running behind expectations following the outturn of the Third Quarter.

We are working on a handful of active “Other Revenues” opportunities in the pipeline which would enable us to land at the low end of our Full Year total revenues objective of -1 to -2%. However, in the event that none of these “Other Revenues” materialize in the fourth quarter, the decline in revenues could be up to c. -3.5%.

9 The backlog represents future revenues from capacity lease agreements and can include contracts for satellites under procurement. 10 Long-term capacity contracts with Noorsat replaced by shorter-term contracts with end-customers 11 Wins/DHI (Mobile Connectivity) deconsolidated from end-August 2016 and DSAT Cinema (Video) from end-October 2016 and Noorsat ( Video) consolidated from October 2017. 12 At constant currency and perimeter. The variation is calculated as follows: i) 9-months 2017-18 USD revenues are converted at 9-months 2016-17 rates; ii) 9-months 2016-17 revenues are restated from Wins/DHI and DSAT. 9-months 2017-18 revenues are restated from the net contribution of Noorsat. 13 EBITDA, EBITDA margin, Net debt / EBITDA ratio, Cash Capex and Discretionary Free-Cash-Flow are considered as Alternative Performance Indicators. Their definition and calculation can be found in Chapter 6 of 2016-17 Reference Document.

This has no impact on other objectives which are all confirmed for the current and next two years:

Revenues (at constant currency and perimeter) are expected to return to slight growth from FY 2018-19 onwards; The EBITDA margin (at constant currency) is expected above 76% for FY 2017-18. From FY 2018-19 onwards it is expected at above 77%; Cash Capex will be maintained at an average of €420 million 14 per annum for the period July 2017 to June 2020. For the current year it is expected below this level; Discretionary Free Cash Flow15 is expected to deliver mid-single digit CAGR in the period July 2017 16 to June 2020 (at constant currency); The Group is committed to maintaining a sound financial structure to support its investment grade credit rating and aims at a net debt / EBITDA ratio below 3.0x; It also retains its commitment to serving a stable to progressive dividend.

This outlook is based on the nominal deployment plan outlined hereunder.

FLEET DEVELOPMENTS

Nominal deployment programme

The Al Yah 3 satellite, on which Eutelsat is leasing capacity for its Konnect Africa project, was launched on 25 January 2018. The mission experienced some challenges during the launch stages resulting in a revised flight plan. Commercial service is expected to start in August 2018.

Procurement of KONNECT VHTS

Eutelsat ordered the KONNECT VHTS satellite from Thales Alenia Space. Expected to enter into service in 2021, it will bring 500 Gbps of Ka-Band capacity over Europe to support the development of European Fixed Broadband and in-flight Connectivity businesses. Significant firm multi-year distribution commitments have been signed with Orange to address the Fixed Broadband market in European countries where the Group has a retail presence and Thales to serve notably the government market.

Changes in the fleet

EUTELSAT 31A reached the end of its operational life and was de-orbited in January 2018. EUTELSAT 16C reached the end of its operational life and was de-orbited in February 2018. EUTELSAT 36 WEST A has been relocated at 59.7° East and renamed EUTELSAT 59A. EUTELSAT 33C now operates in inclined orbit.

14 Including capital expenditure and payments under existing export credit facilities and long-term lease agreements on third party capacity. 15 Net cash-flow from operating activities - Cash Capex - Interest and Other fees paid net of interest received. 16 Discretionary Free-Cash-Flow of €407.8 million in FY 2016-17.

RECENT EVENTS

Disposal of the stake in Hispasat

On 18 th April 2018, Eutelsat’s 33.69% stake in the Spanish satellite operator Hispasat was sold for a consideration of 302 million euros. This operation is in line with the Group’s strategy of rationalising its portfolio of assets in order to maximise cash generation.

APPENDICES: QUARTERLY REVENUES BY APPLICATION

Reported revenues

The table below shows quarterly reported revenues. Q1 2016-17 revenues are restated under the new classifications used since H1 2016-17 results.

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