PARIS--(BUSINESS WIRE)--Aug 1, 2018--Regulatory News:

The Board of Directors of Eutelsat Communications (Paris:ETL) (ISIN: FR0010221234 – Euronext Paris: ETL) met yesterday, chaired by Dominique D’Hinnin, and reviewed the financial results for the year ended 30 June 2018.

Rodolphe Belmer, CEO of Eutelsat Communications, said: “I’m pleased to report that we fully delivered on all of our financial objectives for the second year in a row. In particular, I would highlight the progressive improvement throughout the year for the five operating verticals. Moreover, in terms of financial discipline, we are ahead of plan on the LEAP cost savings program. Elsewhere, the successful application of our design-to-cost policy – clearly illustrated in the renewal of the HOTBIRD constellation – will enable us once again to reduce our capex envelope in the coming years, while the disposal of our stake in Hispasat enhanced our deleveraging efforts. On the operational front we took an important step in terms of shaping our Connectivity strategy with the procurement of our KONNECT VHTS satellite.

During this year, we also delivered a solid commercial performance which sets us in good stead to achieve our objective of returning to slight revenue growth this year. All our other financial targets are also confirmed, and we are recommending a dividend increase of 5% to 1.27 per share, underpinned by substantial discretionary free cash-flow growth, and as a mark of our confidence in the future of our company.”

HIGHLIGHTS OF THE YEAR

Fully delivering on all financial objectives:

Revenues down 1.9% like-for-like, within our guidance range of -1% to -2%; LEAP cost-saving program ahead of track; EBITDA margin of 76.9% at constant currency, well above 76% target; Effective capex containment at €358 million, below the €420m average objective; Discretionary Free Cash Flow up 11.9% at constant currency despite tough comparison basis (+65% in FY 2016-17); Net Debt / EBITDA now in line with 3.0x target level; deleveraging accelerated by disposal of Hispasat stake for €302m; Recommended dividend of €1.27 per share, up 5%; 1.4 times covered by Discretionary Free Cash Flow;

Progressive improvement in trend in the operating verticals

Operating verticals down 1.3% at constant currency and perimeter, with a progressively improving trend (-2.2% year-on-year in the second quarter, -1.1% year-on-year in the third quarter, -0.7% year-on-year in the fourth quarter);

Effective design-to-cost policy underpinning tangible reduction in Capex spend

Replacement of the HOTBIRD constellation a strong illustration of effectiveness of design-to-cost policy; Capex outlook further lowered to €400 million average thanks to above-expectation delivery on design-to-cost;

Robust commercial performance underpinning return to slight growth in FY 2018-19

In Video: Well-oriented channel count, up 4.5% with HD penetration of 21.0%, up 3.8 points;Positive outcome of contract renewals, notably Cyfrowy Polsat and TVN at the HOTBIRD position;New business in Europe with SFR-Altice at 5°West , Mediaset at HOTBIRD and XtraTV at the 9°East orbital position as well as in several emerging broadcast markets, including Fiji on EUTELSAT 172B and the Caribbean region on EUTELSAT 117 WEST B;Absorption of Noorsat to optimise Video distribution in the MENA region. In Government Services: Favourable outcomes of Fall 2017 and Spring 2018 renewal campaigns with the US Department of Defense;Significant incremental business at the new 174° East orbital position;Much of capacity on EUTELSAT QUANTUM reserved. In Mobile Connectivity: Landmark MoU with China Unicom followed by the commercialization of the remaining HTS capacity on EUTELSAT 172B to UnicomAirNet;Agreement with Taqnia for incremental capacity on EUTELSAT 3B and EUTELSAT 70B satellites;These agreements and the double-digit revenue growth confirm the buoyancy of the Mobile Connectivity market.

Procurement of KONNECT VHTS to shape our Connectivity strategy

Konnect Africa project on track for a commercial launch in August 2018; Procurement of KONNECT VHTS with significant multi-year distribution commitments with Orange and Thales.

REVENUES 4

Revenues for FY 2017-18 stood at €1,407.9 million, down 1.9% like-for-like. On a reported basis, they were down 4.7%, reflecting a negative currency effect of 3.2 points and a positive perimeter effect of 0.4 points (impact of the acquisition of Noorsat partly offset by the disposal of Wins/DHI and DSAT Cinema). Overall revenues for the five operating verticals (ie excluding ‘Other Revenues’) were down 1.3% at constant currency and perimeter.

Revenues for the Fourth Quarter stood at €373.9 million. Year-on-year they were up 4.3% on a reported basis, and up by 7.6% on a like-for-like basis. Revenues of the five operating verticals were down by 0.7% at constant currency and perimeter, a trend which with has progressively improved throughout the year (-2.2% year-on-year in the second quarter, -1.1% year on year in the third quarter).

Quarter-on-quarter, revenues increased by 10.8% on a reported basis and by 11.0% on a like-for-like basis. Revenues of the five operating verticals were up by 0.3% at constant currency and perimeter (-0.4% in the second quarter versus the first quarter, -0.3% in the third quarter versus the second quarter).

Unless otherwise stated, all variations indicated below are on a like-for-like basis (at constant currency and perimeter) .

Revenues by application

Core businesses

Video Applications (66% of revenues)

In FY 2017-18, Video Applications revenues were down 0.7% like-for-like to €897.3 million.

Revenues from Broadcast were slightly up excluding the impact of the end of the TV d’Orange contract at the HOTBIRD position, with a solid performance in key emerging markets, notably MENA at the 7/8° West orbital position and Russia at the 36°East and 56°East orbital positions.

Professional Video continued to decline reflecting ongoing pressure on point-to-point services.

Fourth Quarter revenues stood at €223.1 million, broadly flat year-on-year and down 0.8% quarter-on-quarter.

At 30 June 2018 the total number of channels broadcast by Eutelsat satellites stood at 6,929 (+299 year-on-year). High Definition penetration continued to increase, representing 21.0% of channels compared to 17.2% a year earlier, for a total of 1,455 channels, versus 1,142 a year earlier (+313).

Government Services (12% of revenues)

In FY 2017-18 Government Services revenues were stable like-for-like to €158.9 million reflecting predominantly the level of the previous two renewal campaigns with the US Department of Defense.

Fourth Quarter revenues amounted to €40.2 million, up 2.3% year-on-year. The negative base effect of a positive one-off in the Fourth Quarter of the previous year was more than offset by the first effects of the ramp-up of incremental business secured at the 174°East orbital position. On a quarter-on-quarter basis, revenues were up 5.8%.

Commercial activity was favourable throughout the year with a high level of renewals with the US Department of Defense both in Fall 2017 (c.95%) and Spring 2018 (above 95%) as well as the commercialization of the vast majority of the operational transponders at the 174°East position, thereby paving the way for an improvement in trend for this application in FY 2018-19.

Fixed Data (10% of revenues)

In FY 2017-18, Fixed Data revenues were down 10.1% like-for-like to €142.5 million. They continued to reflect ongoing pricing pressure in all geographies and the absence of significant incremental volumes.

Fourth Quarter revenues stood at €34.2 million, down by 10.6% on a year-on-year basis. On a quarter-on quarter basis they were down 1.9%.

Eutelsat’s cautious view on this vertical is unchanged and revenues are expected to continue to decline in FY 2018-19.

Connectivity

Fixed Broadband (6% of revenues)

In FY 2017-18 Fixed Broadband revenues stood at €86.7 million, down 7.8% year-on-year. Fourth Quarter revenues stood at €21.1 million, down by 7.5% on a year-on-year basis and by 1.9% quarter-on-quarter.

This performance reflected lower revenues for 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.

The launch of the commercial service in Africa on the Al-Yah-3 satellite in August and actions in Europe including yield management, differentiated offers and a strengthened focus on under-penetrated verticals should lead to a return to growth in FY 2018-19.

Mobile Connectivity (6% of revenues)

In FY 2017-18 Mobile Connectivity revenues stood at €74.4 million, up 18.2% year-on-year, reflecting the effect of the Taqnia contract signed last year, the contribution of 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.

Fourth Quarter revenues stood at €19.5 million, up 14.6% year-on-year and by 9.0% quarter-on-quarter.

Revenues in FY 2018-19 will benefit from start of the UnicomAirNet contract on EUTELSAT 172B in January 2019, the contribution of the new contract with Taqnia at several orbital positions, as well as the ongoing ramp up of capacity contracts on KA-SAT for the benefit of several European airlines.

Other revenues

In FY 2017-18, ‘Other Revenues’ amounted to €48.1 million compared with €55.0 million a year earlier. They included notably fees in respect of a small number of material technical and engineering contracts which materialized in the fourth quarter.

OPERATIONAL AND UTILIZED TRANSPONDERS

The number of operational 36 MHz-equivalent transponders stood at 1,427 at 30 June 2018, up 55 over 12 months, mainly reflecting the entry into service of EUTELSAT 172B end-November 2017 and subsequent relocation of EUTELSAT 172A at 174°East. The number of transponder utilized is up by 40 units year-on-year. As a result the fill rate stood at 68.1% compared to 67.9% a year ago.

Note: Based on 36 MHz-equivalent transponders excluding high throughput capacity

BACKLOG

Note: The backlog represents future revenues from capacity lease agreements and can include contracts for satellites under procurement.

At 30 June 2018, it stood at €4.6 billion, down 12% compared to 30 June 2017, reflecting mainly the impact of the integration of Noorsat (-€0.4 billion). Contracts added to the backlog during the year included notably renewals with Cyfrowy Polsat and TVN at HOTBIRD, the new contract with UnicomAirNet at 172°East as well as the new contract with Taqnia at several orbital slots.

The backlog was equivalent to 3.2 times 2017-18 revenues with 83% represented by Video.

PROFITABILITY

EBITDA stood at €1,076.9 million (€1,133.6 million at 30 June 2017), down 5.0%.

The “LEAP” cost savings plan is ahead of track, generating €24m of savings versus an objective of €15 million in FY 2017-18.

As a result, despite lower ‘Other’ revenues with lower associated costs and the slightly dilutive impact of the integration of Noorsat, the EBITDA margin stood at 76.9% at constant rate (76.5% on a reported basis), compared to 76.7% last year.

Group share of net income stood at €290.1 million versus €351.8 million in 2016-17 a decrease of 17.5%. The net margin stood at 21%. This reflected mainly:

The decrease in EBITDA; Lower depreciation and amortisation, down €26.9 million year-on-year, thanks to lower depreciation of satellites having ended their operational life or already fully depreciated which was not offset by the impact of satellites which entered service in the past 18 months (EUTELSAT 172B and EUTELSAT 117 WEST B); ‘Other operating income’ of -€18.5 million, reflecting notably the one-off accounting impact of the integration of Noorsat, compared with +€14.1 million a year ago which included the capital gain on Wins/DHI; A financial result of -€105.2 million, more favourable than last year (-€130.9 million): it reflected on one hand lower net cost of debt (-€95.2 million versus -€125.7 million a year earlier) thanks mainly to the reimbursement of the €850 million bond in March 2017, and on the other, the evolution of ‘Other financial income’ (-€10.1 million versus -€5.2 million a year earlier) linked to a negative variation in foreign exchange gains and losses and in the fair value of financial instruments. A tax rate of 32.0% which reflected notably the recognition of a positive non-cash one-off related to deferred tax liabilities to take into account the future evolution of the French corporate tax rate. As a reminder last year’s tax rate (24.8%) also reflected the partial tax-exemption of the capital gain in respect of the disposal of Wins/DHI.

DISCRETIONARY FREE-CASH-FLOW

Net cash flow from operating activities stood at €880.8 million compared to €982.9 million in 2016-17, down €102.1 million. This reflected mostly the decrease in EBITDA, slightly higher tax paid, relating to the timing of tax payments, as well as an unfavorable evolution in working capital compared to a demanding comparison base last year.

Cash Capex9 amounted to €358.2 million compared to €414.4 million a year earlier, below the target of €420 million per annum on average over three years, reflecting the phasing of various satellite programmes as well as effective Capex containment. It included initial payments in respect of the KONNECT VHTS satellites and the HOTBIRD constellation replacement.

Interest and other fees paid net of interest received stood at €107.9 million (€160.7 million in 2016-17); the €52.8 million decrease reflected mainly the repayment of the €850 million bond in March 2017.

As a result, Discretionary Free-Cash-Flow10 stood at €414.7 million at 30 June 2018, up by €6.9 million (or 1.7%) year-on-year. At constant currency it was up by 11.9%.

FINANCIAL STRUCTURE

At 30 June 2018 net debt stood at €3,241.6 million versus €3,640.7 million a year earlier, a €399.1 million reduction. Discretionary free cash-flow more than covered the dividend payment (€295.4 million including dividends paid to minority interests).

Equity divestments / investments (disposal of the stake in Hispasat and acquisition of Noorsat and minority interest in Broadband for Africa) generated a net cash inflow of €206.2 million, while the foreign exchange portion of the cross-currency swap - included in Net Debt - decreased by €16.1 million. Lower amount of export credit financing and financial leases contributed to the reduction in net debt for €57.4 million.

As a result, the net debt to EBITDA ratio stood at 3.0 times, a 0.2 point improvement on 30 June 2017.

At 30 June 2018 the weighted average maturity of the Group’s debt stood at 2.2 years, compared to 3.0 years at 30 June 2017. The average cost of debt was 2.9% (after hedging), down from 3.1% in FY 2016-17.

Liquidity remains strong, with undrawn credit lines of €650 million and cash of €734 million.

DIVIDEND

On 31 July 2018 the Board of Directors agreed to recommend to Annual Meeting of Shareholders on 8 November 2018 a dividend of €1.27 per share compared to €1.21 last year (+5%), in line with the Group’s commitment to serving a stable to progressive dividend.

The dividend will be paid on 22 November 2018, subject to the vote of the Annual Meeting of Shareholders.

IMPACT OF ADOPTION OF IFRS 15 AND IFRS 16

IFRS 15 and IFRS 16 will be adopted in the Group's consolidated financial statements for the financial year beginning 1 July 2018. The main impacts of IFRS 15 are related to the timing of revenue and cost recognition or reclassifications between revenues and costs for items such as marketing and technical contributions and for subscriber acquisition costs and terminals in the Fixed Broadband application.

The adoption of IFRS 16 will lead to the capitalization of short-term operating leases which were previously accounted as opex.

The Group will apply IFRS 15 retrospectively by restating the comparable period. IFRS 16 will be applied under the simplified retrospective method with no restatement of comparative periods.

Overall, the broad impact of IFRS 15 is estimated between -€15 and -€20 million on 2017-18 revenues (of which -€15 to -€20 million on Operating Verticals). IFRS 16 has no impact on revenues. The combined impact of IFRS 15 and IFRS 16 is estimated at circa +1 point on the EBITDA margin and circa +€30m on Net Debt. It is estimated at between +€5m and+€10m on Cash Capex. There is no net impact on Discretionary Free Cash Flow.

OUTLOOK

Note: The less predictable nature ‘Other Revenues’ (ie revenues which are non-recurring and not related to the commercialization of capacity) leads us to exclude them from our revenue objectives as of FY 2018-19.

All elements of the financial outlook are confirmed or upgraded.

Revenues for the five operating verticals 11 (at constant currency, perimeter and IFRS 15 accounting standards) are expected to return to slight growth from FY 2018-19. The EBITDA margin (at constant currency) is expected above 78% from FY 2018-19, taking into account the impact of IFRS 15 and IFRS 16 accounting standards. Our estimated Cash Capex12 spend is reduced to an average of €400 million 13 per annum for the period July 2017 to June 2020 (versus €420 million previously) reflecting positive impact of design-to-cost policy. Discretionary Free Cash Flow 14 is expected to grow at a mid-single digit CAGR in the period July 2017 15 to June 2020 (at constant currency). The Group is committed to maintaining a sound financial structure to support its investment grade credit rating with a net debt / EBITDA ratio below 3.0x. It also reiterates its commitment to serving a stable to progressive dividend.

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

FLEET DEVELOPMENTS

Nominal launch programme

The upcoming launch schedule is indicated below. Since the last quarterly update in May 2018, the launches of EUTELSAT 7C and EUTELSAT 5 WEST B have been postponed to Q1 2019 (versus Q4 2018 previously)

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