Eutelsat Communications S.A. (ETL.PA) Earnings Call Transcript & Summary

Hello, and welcome to Eutelsat Full Year 2024/2025 Results. My name is Laura, and I will be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions] I will now hand you over to your host, Jean-Francois Fallacher, CEO, to begin today's conference. Thank you.

Hello. Good morning. Welcome. Thanks for joining us today for Eutelsat's Full Year 2024-2025 Results Presentation. My name is Jean-Francois Fallacher. I'm the CEO of the company, and I'm joined today by Christophe Caudrelier, which is our CFO; and Joanna Darlington, which is our Head of IR. Let's go directly to the presentation. On today's agenda, we will obviously run through the key events of this year, the operational performance, the financial performance, and of course, we will wrap up with the strategic and financial outlook. So starting with a reminder of the key highlights of last year. Clearly, last year has been a pivotal year for Eutelsat. First, I am pleased to report that we delivered a solid financial performance aligned with expectations. Total revenues have reached EUR 1.244 billion, which is up 1.6% like-for-like. The 4 operating verticals contributed to EUR 1.226 billion in revenues, up 0.8% like-for-like. And most notably, our LEO, Low Earth Orbit segment saw year-on-year revenue growth exceeding 80%, reflecting the increasing commercial traction across geographies and use cases. These LEO revenues now represent 15% of all group revenues. That is reflecting the substantial growing demand for LEO capacity and [ debt ] across all verticals. Over the past year, we have provided satellite capacity to Ukraine. We have also signed key agreements with European institutions, including a massive framework agreement with the French Ministry of Armed Forces and a contract with the U.K. Foreign and Commonwealth Office. These milestones are reflecting our growing role as a trusted partner in Europe sovereign digital infrastructure. We announced a capital increase of EUR 1.5 billion to support our long-term strategic road map. This initiative is backed by all core shareholders, including the French State and His Majesty's Government of the U.K. and this is expected to be completed by the year-end. This financing will strengthen our capital structure, accelerate deleveraging, unlock investments capacity to support both the continued expansion of our LEO network and our future role in IRIS2 constellation. In parallel, we are pursuing a complementary debt refinancing plan to further enhance our financial flexibility. Now let's have a look at the operational performance. Please note that all the comments I will make on these numbers are relating to like-for-like variations [indiscernible] on a constant currency and perimeter basis. Our total revenues for full year '24, '25 stood at EUR 1.244 billion. This is up by 1.6%. If we look again at the operating vertical revenues, they are up by 0.8% and our LEO revenues amounted to EUR 187 million, up by 84.1%, again, showing the strong demand momentum. Our adjusted EBITDA stood at EUR 676.2 million on June 30, and it was stable, while the adjusted EBITDA margin stood at 54.2%. Now if we look at our CapEx, we had EUR 450 million CapEx last year, which is below the level of '24 due to the phasing of the constellation, the LEO constellation renewal. And our net debt-to-EBITDA was 3.88x. These financial results were in line with our projections of our operating vertical revenues around the same level and an adjusted EBITDA margin slightly below the level of the previous year. Let's have a look now at our different segments. Video is representing 50% of the revenues with EUR 608 million, a decline of 6.5%. Fixed Connectivity revenues are representing 20% of the group revenues, and they grew by 4.3%. Government Services represent 17% of our revenues and are growing by 24%. Mobile Connectivity revenues are representing 13% of the total group revenues, and they were stable year-on-year. Other revenues of EUR 17.5 million are actually coming from recognition from IRIS2 revenues and hedging amongst other things. Let's now have a look at these segments a bit more in detail. Starting now with Video. So revenues Video were down year-on-year by 6.5%. This is clearly reflecting the maturity of this legacy business. Eutelsat leading video hotspots nevertheless continue to attract broadcasters, notably HOTBIRD. HOTBIRD that is at 13 degrees East, which saw the renewal of capacity agreements with long-standing customers, the Swiss broadcasting corporation, for instance, while we had wedotv, which is the global ad-supported streaming TV network that signed a new deal to add free-to-air streaming channels to the HOTBIRD satellites. The fourth quarter revenues on this segment stood at EUR 147 million, down by 6.8% year-on-year, and they were broadly stable quarter-on-quarter. And what I want to state here on the Video segment is that as we announced recently, Eutelsat has removed several more Russian channels from its fleet to be compliant with the latest directives of our national regulator, ARCOM. The impact on revenues of the removal of this channel is estimated at EUR 16 million and a similar amount of EBITDA loss in '25-'26. Let's now go to the Fixed Connectivity vertical. Revenues there stood at EUR 247 million. They were up by 4.3%. This is mainly thanks to the continued growth of the LEO-enabled connectivity solutions. And that is offset by more challenging conditions for the GEO-enabled solutions, including, for instance, the contract on which we ceased revenue recognition with TIM in Italy on KONNECT-VHTS. The fourth quarter revenues stood at EUR 69 million. They were down 14% year-on-year. This reflects, again, year -- last year comparison base because last year was boosted by a high level of terminal sales and recognition of catch-up revenues that explain this quarter -- year-on-year quarter decrease. Quarter-on-quarter revenues were up 21%, and that, again, thanks to LEO revenues performance. Amongst recent commercial wins on the commercial -- on the fixed connectivity on LEO, Eutelsat and Orange signed an agreement for LEO capacity that is going to enable Orange Group to strengthen its satellite solutions portfolio with LEO connectivity solutions for its enterprise and government customers. And of course, that will be for them a potential support on their mobile backhauling globally. Let's now go on the vertical segment on Government Services, where revenues stood at EUR 211 million. That segment grew by 24% year-on-year, thanks to the growth of LEO-enabled solutions, notably with the services we delivered for Ukraine and as well the increased demand from other non-U.S. governments such as Taiwan, for instance. The fourth quarter revenue stood at EUR 65 million, up by 41% year-on-year and 30% -- 38%, sorry, quarter-on-quarter. In June '25, we inked a major EUR 1 billion 10-year framework agreement with France Armed Forces Ministry in the context of the NEXUS program. This will reinforce the French military space communication model by combining military and civilian resources, the civilian resources being brought to the French Army by Eutelsat OneWeb. Elsewhere, we are also proud that we signed a contract recently with the U.K. FCDO. The OneWeb LEO constellation will provide high-speed, low latency connectivity for British Embassies, High Commissions, Consulates and as well as broader U.K. government activities globally. We also signed an extension of the contract with MBS, our German distributor, which is a multiyear, multimillion euro agreement to provide Eutelsat OneWeb LEO connectivity to government and institutional customers across Europe. Let's now look at the Mobile Connectivity revenue segment, which stood at EUR 160 million, actually stable year-on-year. This reflected growing demand for LEO-based solutions, notably here in maritime, and that was actually offset by lower GEO revenues. On the commercial front, we signed last week a deal with India's Station Satcom to deliver LEO connectivity services to the global maritime sector, which is an important contract for us. What I want to state as well is that in this mobile segment, aero connectivity -- aero mobility is really gaining traction. We have now over 100 airplanes installations, which have been completed out of the backlog close to 1,000 aircraft. And we have customers that are major airlines, including, for instance, Air Canada or Delta Airlines. Now let's have a look at our backlog. As you can read there, our backlog is strong and stood at EUR 3.5 billion on June 30, 2025. This is an equivalent of 2.8x our '24/'25 revenues and connectivity is representing 57% of this backlog. Now I will hand over to Christophe, our CFO, that is going to comment for you our financial performance. Christophe, please?

Thank you, Jean-Francois. Good morning, everyone. Starting with profitability. Reported EBITDA stood at EUR 676.2 million at the end of June 2025 compared with EUR 718.9 million a year earlier, down by 5.9%. This gap is explained by the missing OneWeb quarter in fiscal year '24. On a like-for-like basis, the EBITDA was stable. The adjusted EBITDA margin stood at 54.2% at constant currency. It was 54.4% reported versus 55% a year earlier and 59.3% reported. OpEx were EUR 73.4 million higher than last year, reflecting the consolidation of OneWeb over 12 months compared with only 9 months in fiscal year '23-'24. On a pro forma basis, costs were up 3.5%, reflecting the ramp-up of LEO activities to full operational run rate. This impact was mitigated by synergy benefits from the integration of OneWeb and strict cost control measures, among which IT costs and OneStream implementation. Group share of the net result was a loss of EUR 1.0819 billion versus a loss of EUR 309.9 million a year earlier. This reflected other operating expenses of EUR 777 million compared to EUR 208 million last year, including an impairment of EUR 535 million in respect of GEO goodwill in H1 and a further EUR 186 million in GEO satellite impairments. D&A of EUR 808 million versus EUR 702 million a year earlier, reflecting the perimeter effect of OneWeb as well as higher in-orbit amortization due to entry into service of EUTELSAT 36D and 20 LEO satellites during the first half and these have been partly offset by a lower GEO on ground depreciation. Then a net financial loss of EUR 201 million versus EUR 124 million a year earlier, mainly reflecting the evolution of foreign exchange gains and losses and higher interest costs. A corporate tax inflow of EUR 6.7 million versus an inflow of EUR 28.3 million a year earlier, reflecting the nonrecognition of deferred tax for French entities in '24-'25. And finally, losses from associates of EUR 2.4 million versus EUR 22.8 million last year, reflecting the contribution of the stake in OneWeb in the first quarter of financial year '23-'24, now fully consolidated. Let us move to CapEx. Gross CapEx amounted to EUR 449.8 million compared with EUR 517.1 million a year earlier. This decrease reflects lower GEO satellite program expenditure and lower LEO on-ground CapEx as well as the phasing of CapEx related to the renewal of the LEO constellation. Capital expenditure is expected at a level of EUR 1 billion to EUR 1.1 billion in the fiscal year '25-'26, reflecting the timing of key milestones, which are including the order of an initial batch of 100 additional satellites in December 2024 as well as the upcoming order of 340 further satellites for the LEO constellation. Going forward, CapEx will remain focused on LEO activities in line with the group's strategic vision, primarily on the Gen-1 follow-on program. GEO CapEx on the other side will ensure service continuity. At the end of June 2025, net debt stood at EUR 2.6266 billion, up by EUR 82.2 million versus the end of June '24. It reflected CapEx-related movements and higher financial costs, partially offset by net cash flow generated by activities as well as the reclassification under IFRS 5 of the liabilities of the assets held for sale in the context of the disposal of the passive ground infrastructure for more or less EUR 100 million. This disposal remains on track for the foreclosure at the beginning of calendar year 2026. As a result, the net debt to adjusted EBITDA ratio stood at 3.88x compared to 3.79x at the end of June 2024. The average cost of debt after hedging stood at 4.37%, down from 4.87% in fiscal year '23-'24. This decrease reflects both the reduction in short-term interest rates on the group financing index on variable rates as well as the maturity in January '25 of the Cross Currency Swaps portfolio. The weighted average maturity of the group debt stood at 2.5 years compared to 3.5 years at the end of June '24. Liquidity remains strong with undrawn credit lines and cash around EUR 1.07 billion. Now back to Jean-Francois to comment the outlook and next steps.

Thank you very much, Christophe. So a few reminders of the key elements of our market update that took place on June 19, 2025. As you can see there, the B2B satellite connectivity market is seeing a strong momentum with projected growth of this total market around 12% per year through '29. And this is expected to more than double the size than 2033. And virtually, all that growth in connectivity is being driven by LEO, which is massively outpacing the broader market growth. The LEO B2B revenue, satellite revenue growth is expected to be at a growth of 28% CAGR through 2029 and to multiply its current size five-fold over the next 8 years. So in summary, LEO is no longer an emerging technology. This is a proven and scalable solution that is really unlocking entirely new use cases. And thanks to its low latency, high throughput and fast, flexible deployment has a lot of potential, and this is precisely the market on which we are positioned with our OneWeb constellation. So since Eutelsat has acquired OneWeb in 2023, we've made strong progress in addressing a number of operational challenges that were identified at that time. And this is positioning us today to fully capitalize on this opportunity. I want to pinpoint a few key matters. The first one is that our satellite fleet is now fully in orbit with a further 20 satellites that have been added in 2024, which led to upgraded service quality. Today, we are operating a fleet of over 650 satellites that are offering more than 99% network availability. We have now 39 satellite ground portals, which are live across the globe. There are 5 more under deployment, and that will put us on track to offer a full worldwide global coverage in 2026. And from a regulatory standpoint, we have secured the commercial licenses in more than 180 countries for now. And we offer a full suite of next-generation terminals with further innovation on the way, including a new manpack model for military usage and dedicated IO -- UT antennas specialized for airplanes. All of this is putting Eutelsat in a fundamentally stronger position to scale in LEO. Zoom on the traction we are seeing on Government Services now. I remind that we are the only one of 2 LEO operators that is currently not a U.S. company. And as mentioned here in this presentation that you see on the screens, the strategic importance of Eutelsat has been now showcased by a number of deals. The most important is clearly the landmark framework agreement we are having with French Ministry of Armed Forces alongside France's NEXUS program, which is a $1 billion -- EUR 1 billion, sorry, framework contract. But we also signed recently a LEO capacity deal with the U.K.'s Foreign and Commonwealth office to connect Embassies and other sites abroad. And last but not least, we have renewed and enhanced a multiyear multimillion euro extension of our LEO capacity contract with our German distributor, MBS to address the needs of some European governments. Now let's go back to our capital increase. Since our communication -- our last communication on June 19, we are obviously delighted that His Majesty's Government of the U.K. has joined our capital increase alongside the other core shareholders. This is boosting the capital increase from EUR 1.35 billion to EUR 1.5 billion. And you can see on this slide the details of the U.K. participation that are outlined. Clearly, this capital raise of EUR 1.5 billion will support the execution of our strategic road map and clearly reinforce our financial strategy. It will strengthen our balance sheet, reduce the pro forma leverage to around 2.5 at the end of the fiscal year '26 and enhance our credit profile. That will clearly unlock access to complementary funding sources such as debt market, ECA financing, and all of these will be critical to support our CapEx plan over '26-'29, alongside, of course, with the continued improvement of our LEO operating cash flows. Let's now turn to our financial objectives. So clearly, since stepping into the role, one of the findings that has stood clearly out for me is the pace at which commercial momentum is building across multiple verticals and geographies. It's a strong signal that Eutelsat proposition is resonating and that we are now meeting real and growing customer needs. So in this context, I have set out a clear and focused action plan for the company. First, scale up the operations to achieve full global coverage with a total of 44 ground satellite portals, giving us a full earth coverage. Second, on the go-to-market front, we are sharpening our focus on high-value use cases such as aero, tactical mobilities, seeking to deploy more specialized and more cost-efficient user terminals and, of course, obtaining remaining licenses to enable service activation in key countries. And third, on the operational side, we are ensuring continuity beyond Gen-1 with the upcoming deployment of 440 follow-on satellites while continuing to enhance performance across software, ground infrastructure and UT globally to provide the best service with our constellation. If we now go to the financial objectives for next year. In full year '25-'26, we are expecting LEO revenues to demonstrate further strong growth, rising by 50% year-on-year. This dynamic growth will compensate, but not yet outweigh the decline in GEO revenues and the GEO revenues will be impacted, unfortunately, by additional Russian sanctions in the Video business. As a result, Eutelsat target revenues in line with and an adjusted EBITDA margin slightly below those of full year '24-'25. On the CapEx front, as Christophe mentioned earlier, we are expecting to reach approximately EUR 1 billion to EUR 1.1 billion CapEx and following the contemplated capital increases announced in June, and this capital increase is due to be completed by the end of the year, the calendar year '25, net debt-to-EBITDA estimated is at circa 2.5x by year-end '25-'26, which is clearly reflecting a robust and self-funded financial structure. If we now look on the longer term, when we look further out and GEO gathers momentum, Eutelsat is expecting growth and profitability to ramp up with revenues expected to range between EUR 1.5 billion and EUR 1.7 billion by the end of '28-'29. That is clearly thanks to the strong momentum of LEO revenues, which are going to significantly expect -- outperform, sorry, the market growth of B2B connectivity revenues. In terms of operating leverage, we expect to drive mid- to high single-digit percentage points improvement in EBITDA margin, which should result -- will result sorry, in a margin of at least 60% by full year '28-'29. And in the longer term, post '28-'29, the B2B connectivity market is expected to pursue its growth at a double-digit rate, again, mostly driven by the LEO market expansion. So to sum up, Eutelsat is experiencing robust growth in your revenues on the back of a strong demand. Eutelsat is uniquely positioned as the European space connectivity champion in shifting geopolitical environment. We are making strong progress in addressing the operational challenges, and we are on track for our full global services in 2026. Management is laser-focused on revenue growth drivers, aiming to deliver EUR 1.5 billion to EUR 1.7 billion revenues in full year '28-'29 with an EBITDA margin of 60% more. And financing is secured with a strong backing from our core shareholders for an upcoming EUR 1.5 billion capital increase, underpinning a fully comprehensive '26-'29 financing strategy. On that note, I thank you very much for your attention. And now Christophe, Joanna and myself are ready to take your questions.

[Operator Instructions] We'll now take our first question from Aleksander Peterc of Bernstein.

First of all, on your fourth quarter revenue, 2 things stand out. One is obviously the strong government. And the second one is what I believe is consultancy revenues from IRIS2, correct me if I'm wrong, in the line, other. So could you help us understand, can you sustain this momentum in governments and how we should model the other revenue line going forward? And then I have a quick follow-up on OneWeb.

I mean, indeed, you're right. I mean, the EUR 70 million are mostly linked to IRIS2-linked revenues and a few other items, but mostly linked to IRIS2. And the way you should model is clearly -- I mean, you see the trends. I mean, the trends on the GEO, Video revenues, which are legacy revenues is we are expecting a continuous declining trends of the mature legacy businesses. Same on the connectivity GEO business and very, very strong growth on the LEO OneWeb business. So that's obviously the way I'm sure you are already doing modeling and you should continue doing modeling in the future. I don't know if Christophe or Joanna want to add something.

Yes. Maybe a couple of points, Aleksander. First, starting on the Gov and the strength of the Gov in Q4. Obviously, it's related to the increase in service revenues, but you should also take into consideration a strong momentum on the equipment sales during Q4, which explains some of the very strong growth for this particular quarter. So obviously, you should figure that out in your projections. On IRIS2, I mean it's really related to the -- so to the revenue that we recognize for the work that is performed for IRIS2. This is mainly related to internal cost, I mean, man hours or hours that are invoiced. It's -- I mean, they should continue in the years to come as long as the IRIS2 program is on, in development. It's quite difficult to predict a precise figure. That's also the reason why, I mean, they are allocated in other revenues. And they are kind of one shot or depending on the specific requirements and on the specific frame of the projects. That's what I can say on IRIS2.

Okay. Great. And then a quick follow-up just on your revenue with OneWeb. So first of all, do you plan to continue reporting this revenue line separately quarterly or on a full year basis? And the second kind of sub-question would be, how is the connectivity revenue distributed within OneWeb? What's driving the growth? Is it more government? Is it more fixed data mobility?

So yes, first of all, I can confirm that we will continue to report the split between LEO and GEO revenues. That's for sure. What I can say is it's quite spread over the different verticals. The growth in OneWeb is strong, and this is true for the verticals we are reporting. I mean there's no major significant variance within the total revenues and between the different verticals. And what I can say is it's more or less in line with our historical split of revenues within connectivity. No major change.

We'll now take our next question from Stephane Beyazian from ODDO.

I've got 2, if that's possible. The first one is, can you tell us a little more on what are your expectations specifically for the contract with the French Army and also with the U.K.? When do you expect revenues to start kicking in? And what sort of size could we be thinking of? And my second question is regarding the OneWeb revenues. Is it possible to have a bit more detail? Because I guess some of the revenues reported for OneWeb also include some revenues from Eutelsat. So I was just wondering whether we can have the, let's say, net revenues or external revenues?

Shall I -- Stephane, thank you for the question. I mean on the OneWeb revenues, they are purely external. I mean there are no internal Eutelsat revenues. I mean what we are communicating here EUR 183 million revenues of sales to third parties. So there is no, let's say, internal focus in the revenues publication. This is just external. On the first question, I mean, we are working with the French Army currently to make these revenues start kicking in as soon as -- some of these revenues start kicking in as soon as the end of this calendar year 2025. So in the middle of our fiscal year '26 basically. So that's what the plan is. After that, I mean, you have seen the size of the contract. It's a EUR 1 billion framework contract over 10 years. So it gives you an idea of the expected, I would say, run rate yearly once we will have ramped up the contract. So roughly around EUR 100 million per year revenues expected on 3 main topics without going into the details of this contract. The first topic is capacity. So the French Armies are planning to buy from us just raw capacity. The second one is potential payloads on upcoming satellite launch, which will be specific to military usage. And the third one is hardening in a way, helping us to harden the constellation with some stronger encryption, for instance, or other specific matters that would be purposeful for military usage.

If I just may add one point on your first question, Stephane, on the -- it's what we report is not OneWeb revenue. We report LEO revenues, right? So this is the combination of all LEO revenues. So obviously, LEO revenues are based on the constellation owned by OneWeb. But what you have is you may have some revenues within Eutelsat S.A. that are LEO related. But what we are reporting, again, as Jean-Francois mentioned, is 100% external revenues.

And just a follow-up, if that's possible. You also mentioned, I think, some revenues from Ukraine. Do you see more potential there?

Yes, we do, and this is the aim of the extension we just signed with one of our distributors. So we see the services and the number of, let's say, the usage, they are growing basically, and that is month after month.

And we will now take our next question from [indiscernible] of Bank of America.

Quickly on the debt refinancing plan, I think you mentioned early on in the call that there can be a potential debt refinancing exercise. Can you maybe elaborate a bit on that plan?

Yes, sure. Thanks for the question. Well, what I want to first start with and stress is that, obviously, the global financing plan for the group is obviously starting with the equity raise and the increase in share capital. So this is the very big important point. This is a start point. This allows us to have a much better balance sheet, first. Second, it's, as you have probably seen, highly positive on the rating side and our profile -- our rating profile is improving significantly, thanks to this increase in share capital. So on this basis, yes, obviously, this allows us to address the financial markets, and it's part of our plan for the year to come. This will be addressed through mainly 2 things. First of all, is financing through export credit agency support. So that's the first leg. And the second leg is obviously to refinance our current bonds. As you know, we have a maturity -- a first maturity for year 2027, calendar year 2027. So we will be addressing this in this coming year. It's a bit early for us to give you a precise timetable of when we will go to the market. But obviously, all the teams are focused on this, and it's the current work that we are doing.

[Operator Instructions] And we'll now move on to our next question from Ben Rickett of New Street.