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

Good day, and welcome to the Eutelsat Full Year 2021 Results Conference Call and Webcast. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Rodolphe Belmer, CEO. Please go ahead, sir.

Welcome, and thank you for joining us today at our full year 2020/2021 results presentation. I am Rodolphe Belmer, CEO. And I'm joined on today's call by Michel Azibert, our Deputy CEO; and Sandrine Téran, CFO. Let's start by taking a look at the highlights of the year. Operating verticals revenues were at the top end of our range of objectives, which were upgraded twice during the year. Despite a tough external context related to the COVID crisis, we delivered a robust financial performance, including industry-leading profitability, a record level of cash generation and a further reduction in net debt. On the commercial front, the strong performance resulted in a growing backlog, representing 3.5 years of revenues. We made significant headway in our Fixed Broadband strategy, laying the final foundations for acceleration in growth from this year onwards. We made a significant strategic step gaining a foothold in the LEO opportunity through our investment in OneWeb. And we are well on track to receive $507 million C-Band proceeds, which formed a large part of the investment into OneWeb. Our updated financial objectives include a EUR 30 million raise at constant currency of our adjusted discretionary free cash flow objective for fiscal year '22. And we are recommending a dividend of EUR 0.93 per share, up 5%, in line with our commitment to strong shareholder returns. Let's have a closer look at the key figures. Revenues for the 5 operating verticals stood at EUR 1.201 billion on a reported basis and 1 billion EUR 1.220 billion at the EUR 1.14 rate on which our objectives were based. This represents a 3.3% decline on a like-for-like basis. In spite of this decline and one-off bad debt-related headwind, we delivered an industry-leading level of profitability with a 74.7% EBITDA margin, down 2 points year-on-year. Cash CapEx amounted to EUR 342 million is higher than last year, which reflected the Eutelsat 5 West B insurance proceeds, but well within our EUR 400 million envelope. Discretionary free cash flow stood at EUR 467 million on a reported basis. It is only EUR 7 million lower than last year, a remarkable performance considering the above-mentioned insurance proceeds we had on the 5 West B satellites. On an adjusted basis, as per financial objective definition, it stood at EUR 498 million. As a result, our net debt-to-EBITDA ratio stood 2.88x, that is 3.05x last year, a very comfortable level compared to our medium-term objective of around 3x. And our recommended dividend per share of EUR 0.93 per stock is covered 2.2x by reported discretionary free cash flow. Let's take a quick look at our track record in terms of cash flow. Over the past 6 years, we have generated in excess of EUR 2.4 billion of discretionary free cash flow, more than our current market capitalization. This despite the challenging environment for the industry, which led to a EUR 300 million revenue erosion. It has been possible, thanks to our systematic and rigorous actions to optimize all levers below top line, including OpEx, CapEx, cash interest and cash tax. It means DFCF has recorded a 17% organic CAGR and has risen by 90% on a reported basis, so that the ratio of cash flow to revenues has more than doubled from 16% in fiscal year '16 to a record 38% in fiscal year -- this fiscal year, fiscal year '21. Turning to commercial activity. Several major contracts were signed across all our applications in broadcast. Notably, the renewal with Sky Italia, highlighting the long-term resilience of European Pay-TV segment and an incremental commitment from MultiChoice in Sub-Saharan Africa. In Government Services, a new EGNOS payload on the HOTBIRD 13G with a total contract value of EUR 100 million over 15 years and the selection of our future EUTELSAT 36D satellite by Airbus to carry a UHF payload, including some firm precommitment. It is data, multiple deals with new or expanded capacity for corporate networks and backhaul highlighting improved volume trends in this segment. In fixed broadband, a major wholesale agreement with TIM on KONNECT and KONNECT VHTS, similar to our deal in France with Orange and representing a contract value of almost EUR 115 million. And finally, in mobile connectivity, an agreement with Global Eagle for inclined orbit capacity at 139 degrees West. As a result, our backlog stood at EUR 4.4 billion, up 7% year-on-year and represents now 3.5 years of revenues. We have made further substantial progress in our fixed broadband rollout with the EUTELSAT KONNECT satellite now operating at full coverage over Europe and Africa. In Europe, on the wholesale side, agreements with Orange in France and TIM in Italy. Discussions with other operators are progressing well also. And we expect to be able to make further announcements shortly regarding a couple of other major European countries. And on the retail side, we have successfully integrated BBB and launched competitive retail offers in several countries across the continent. In Africa, multiple agreements in several major countries have enabled us to strengthen our distribution capabilities through multiple distribution channels. In South Africa, 2 wholesale agreements with leading service providers, Paratus and Vox, in DRC. We are testing wholesale distribution with Orange in Nigeria, building on the successful experience of the preferred partnership program in Europe. We concluded an enhanced partnership with Coollink. And we secured a contract with Facebook to accelerate the rollout of Express Wi-Fi hotspots, a proven solution for community Wi-Fi across our African footprint with the aim of connecting several hundred -- several thousand sorry, several thousand hotspots by 2025. Two months ago, we secured a foothold in the LEO segment, the low earth orbit segment through a $550 million investment in OneWeb, becoming a major shareholder alongside the U.K. government and Bharti in OneWeb. This represents a compelling entry point for us, this investment with the consideration roughly equivalent to our gross C-Band proceeds coming just ahead of the commercial rollout and with OneWeb now fully funded. OneWeb is ideally positioned to be among the winners in the nongeostationary landscape, thanks to its strong spectrum rights, first mover advantage and scalable technologies. And it comes with strong commercial potential for win-win cooperation with us, thanks to complementarity of resources and assets. The investment represents a compelling economic potential with revenues expected to reach around $1 billion per annum in 3 to 5 years following full deployment of the constellation, and a highly profitable wholesale distribution approach. It is consistent with our financial objectives, hurdle rates, dividend policy and solid solicited investment-grade ratings. It will be fully cash funded through our C-Band proceeds and available liquidity. In the last couple of months, OneWeb has seen several important developments, operationally with the ongoing rollout of the constellation, 254 satellites are now in orbit, with 4 launches completed since January 1. Service demonstrations are starting in several key locations, and partial entry into service is on track for the end of this calendar year, the end of 2021. Financially, with the funding of Gen-1 now fully completed following the further investment by Bharti. Commercially, with the progressive buildup of the distribution network through MOU with BT for rural broadband in the U.K. and opportunities beyond the U.K. stores for BT's global customers. Two partnerships with distributors in Alaska, a distribution partnership with ROCK Networks to provide connectivity for Canada's National Defence and Security and the acquisition of Trustcomm in the U.S., addressing USG-related customers. The bulk of this investment will be financed by our C-Band proceeds. As a reminder, we are eligible for $507 million in accelerated relocation payments in 2 phases, to be completed, respectively, by end 2021 and end 2023. Our transition plan is based on the simplified migration strategy, securing the early completion of both phases. It does not require any new satellite launch with regrooming performed on existing fleets, and it comes with a limit of around 55 antennae requiring filter installation. We have accomplished good progress in that respect. And the final completion report on both Phase I and Phase II will be filed immediately. As a result, we expect to receive the full proceeds in the current fiscal year. Now over to Michel Azibert for a look at the operational performance.

Thank you, Rodolphe. So full year revenues amounted to EUR 1.234 billion versus EUR 1.278 billion last year. They reflected a broadly neutral perimeter effect with the consolidation of Bigblu Broadband Europe since October 2020, offset by the disposal of EBI at end April 2021. And a negative currency effect of minus EUR 33 million, which is largely offset by currency hedging, representing a plus EUR 26 million variation and reported in other revenues. Excluding other revenues, the revenues of the 5 operating verticals were down by 3.3% on a like-for-like basis. Turning to the revenues of each of the 5 verticals. Broadcast, 62% of group total, recorded revenues of EUR 741 million down 4% versus last year on a like-for-like basis. Data and Professional Video, 13% of group total, saw revenues of EUR 161 million, down 4%. Government Services, 13% of group total, saw revenues of EUR 151 million, unchanged versus last year. Fixed Broadband, 7% of revenues, stood at EUR 80 million, up 7% versus last year. And Mobility, 5% of revenues, saw revenues of EUR 67 million, down by 8%. Finally, other revenues stood at EUR 33 million, which included plus EUR 16 million of positive hedging revenues. They were EUR 31 million higher than last year which included negative hedging for minus EUR 11 million. Let's look at each one in more detail. Starting with Broadcast. Revenues were down 4.2% to EUR 741 million. That reflected notably the full year impact of the renegotiation of the Forthnet contract and lower revenues in Europe from the slowdown in the pace of new business affecting resellers in particular. Fourth quarter revenues were broadly stable quarter-on-quarter, excluding the small but volatile Fransat revenues. On the commercial front, beyond the renewal with Sky Italia and incremental capacity commitment from MultiChoice, the tough economic environment led to a lower than usual level of new business throughout the year, particularly in Europe. Nevertheless, there have been some signs of normalization recently with, for example, a contract with a major global broadcaster for content distribution in Europe, on the EUTELSAT 9B satellite and also very advanced leads for incremental capacity in Italy at 5 degrees West and 9 degrees East. Data and Professional Video revenues stood at EUR 161 million, down by 3.7% year-on-year a considerable improvement versus the double-digit decrease in prior years. Fixed Data, which accounts for more than 2/3 of this vertical is benefiting from improving volumes which largely offset the persistent price pressure. Professional Video remains in structural decline, although it benefited from a recovery in occasional use compared to fiscal year '20, which was strongly impacted by the COVID-related suspension of live sports events. Fourth quarter revenues were up 0.9% year-on-year and 2.1% quarter-on-quarter. They included a one-off sale of equipment for circa EUR 1 million. On the commercial front, as mentioned previously, the year saw dynamic activity levels highlighting the multiple opportunities in mobile backhaul and corporate networks. Government Services stood at EUR 151 million, stable versus last year on a like-for-like basis. On one hand, they reflected the negative carryforward effect of renewals with the U.S. government during the past 18 months and a tough comparison basis in the fourth quarter, which last year included a positive one-off from the temporary relocation of EUTELSAT 7A. On the other, they benefited from new business as well as the contribution of the EGNOS payload which entered service in February 2020 on Eutelsat 5 West B. Fourth quarter revenues stood at EUR 38 million, down 4.5% year-on-year, but up 1.7% quarter-on-quarter. On the commercial front, the selection of EUTELSAT 36 D by Airbus to carry its latest UHF payload highlights the opportunities related to hosted payloads in this vertical. Finally, tonight's launch of EUTELSAT QUANTUM will bring new capacity to this vertical next year. Fixed Broadband revenues stood at EUR 80 million, up 7% like-for-like. They reflected the initial revenues generated by KONNECT Europe, including the start of the wholesale contracts with Orange and TIM, and growth at our African operations. Fourth quarter revenues stood at EUR 18 million, up 35% on a year-on-year basis and up 16% quarter-on-quarter. As previously mentioned by Rodolphe, the past year was marked by significant milestones for our fixed broadband operations, both in Europe and in Africa. Fiscal year '22 is expected to see the full benefit of these actions as well as the materialization of other initiatives leading to a substantial acceleration of growth. Mobile Connectivity revenues stood at EUR 67 million, down 8% like-for-like. They reflected the impact of the COVID crisis on Aero Mobility notably the absence of airtime-related revenues on KA-SAT and lower revenues from certain service providers. On a more positive note, Maritime continued to perform well on the back of the ramp-up of contracts secured in the last couple of years. Overall, this vertical will continue to face a degree of uncertainty on the timing of its recovery. Trends nevertheless, improved in the fourth quarter with revenues up 16% year-on-year, albeit from a low base and 12% quarter-on-quarter, thanks to the contribution of the Global Eagle contract. On the commercial front, Eutelsat ADVANCE our recently launched end-to-end managed connectivity service has shown early traction and has already been selected by several maritime service providers. A bit more color on EUTELSAT ADVANCE. It is an innovative end-to-end managed services offer addressing our connectivity verticals, in particular, Maritime Mobility, but also corporate networks, backhaul and government services. For customers, it provides a global, flexible, scalable and easy to implement turnkey service with seamless user experience and support. For us, it represents an opportunity to better leverage our existing resources at limited incremental cost and creating a powerful platform to optimize existing and future GEO and potentially LEO resources. A quick look at the backlog and fill rate. At end June, our backlog stood at EUR 4.4 billion, up 7.4% year-on-year. It reflected the long-term renewal of the contract with Sky Italia the wholesale agreement with Telecom Italia and the additional EGNOS payload, which are partly offset by natural backlog consumption. The backlog was equivalent to 3.5x 2020, 2021 revenues, with Broadcast representing 64%. The number of operational transponders at end June stood at 1,377 almost unchanged year-on-year. The number of utilized transponders stood at 981, up 21 units year-on-year. As a result, the fill rate stood at 71.2%, compared with 69.7% a year ago. Now over to Sandrine to run through the financials.

Thank you, Michel, and good morning. Starting with EBITDA, which stood at EUR 922 million versus EUR 985 million a year earlier, down 6.4%. The EBITDA margin stood at 74.7% versus 77.1% a year earlier. This reflected mostly lower revenues, the dilutive impact of changes in perimeter, in particular, the consolidation of Bigblu Broadband Europe, which represents a one point impact. The specific bad debt headwind also accounting for approximately 1 point related mostly to mobile connectivity customers in the context of the COVID crisis. We do not expect this level of bad debt to be recurring. These elements were only partly offset by continued cost discipline with the execution of the LEAP 2 plan. As a reminder, the objective is to secure EUR 20 million to EUR 25 million OpEx savings next fiscal year. Half of the upper end of this target is already delivered at the end of this fiscal year. Moving to P&L. Group share of net income stood at EUR 214 million versus EUR 298 million last year, down by 28%. The net margin stood at 17% versus 23% last year. This reflected on the negative side, the lower EBITDA. Other operating income of minus EUR 67 million versus plus EUR 36 million last year. Current year included one-off costs related to the Paris headquarter move, the LEAP 2 plan and M&A activities as well as some asset impairments. Most of this effect is noncash. The tough comparison base since last fiscal year included insurance proceeds from EUTELSAT 5 West B, a net financial result of minus EUR 95 million versus minus EUR 81 million the previous year, mainly reflecting an unfavorable impact from foreign exchange gains and losses. On the positive side, lower D&A for plus EUR 23 million as a result of the deconsolidation of KA-SAT at the end of the amortization period of certain assets, which more than offset the full year effect of the amortization of EUTELSAT 5 West B, EUTELSAT 7C and the entry into service of KONNECT. Lower tax for EUR 73 million as a result of lower pretax profit, the variation of the deferred tax assets of Satmex and the 2-point reduction in corporate tax rate in France. As a result, the effective tax rate stood at 10% versus 24% last year. Net cash flow from operating activities amounted to EUR 889 million, EUR 110 million above last year. The decrease in EBITDA was more than offset by a massive improvement in working capital requirement reflecting a catch-up compared to fiscal year '20, which was impacted by the COVID crisis. Lower cash tax than the previous year, which included taxes related to one-off insurance proceeds. Cash CapEx amounted to EUR 342 million. It was EUR 120 million above fiscal year '20, which reflected milestone delays in the context of the COVID crisis. and the EUR 86 million insurance proceeds from EUTELSAT 5 West B. It, nevertheless, remains well within our EUR 400 million average per annum envelope. Interest and other fees paid amounted to EUR 80 million, almost unchanged versus last year. As a result, discretionary free cash flow amounted to EUR 467 million on a reported basis. At constant currency and excluding the impact of hedging, one-off costs related to the LEAP 2 plan and the move to the new headquarters, adjusted discretionary free cash flow was stable at EUR 498 million. Excluding the post-tax effect of the above-mentioned insurance proceeds recovered in fiscal year '20, it would have been up 12% or plus EUR 53 million. At 30 June 2021, net debt stood at EUR 2.655 billion, recording a further EUR 344 million decrease versus end June 2020. Discretionary free cash flow more than covered the dividend payment of EUR 205 million and other variations included equity investment and divestments, mostly the acquisition of BBB and the disposal of EBI, resulting in a net increase in debt of EUR 50 million. The mark-to-market of the foreign exchange portion of the cross-currency swap, resulting in a net decrease in debt of EUR 34 million and other items mostly related to the evolution of leases and structured debt contributing to the decrease in net debt for a net EUR 63 million. As a result, the net debt-to-EBITDA ratio stood at 2.88x, an improvement compared to the 3.05x recorded 1 year ago. This represents a very comfortable level compared to our medium-term objective of around 3x and a sound position just ahead of our investment in OneWeb. As a reminder, all rating agencies have confirmed our investment-grade ratings recently. Finally, in the last 12 months, we undertook several successful financing operations. In particular, the following operations have been completed. The issuance of 8-year EUR 600 million bond with a 1.5% coupon to refinance the June '21 EUR 500 million maturity, which was early redeemed in April 2021. An agreement with the European Investment Bank for EUR 200 million 8-year term loan to finance the KONNECT VHTS program at extremely compelling terms. The early repayment of EUR 200 million out of the EUR 600 million EUTELSAT communication term loan maturing in March '22, benefiting from the group's strong liquidity position. The refinancing of the remaining EUR 400 million EUTELSAT communications term loan and attendant EUR 200 million undrawn credit line by 2 facilities for the same amount with an initial term of 5 years and slightly improved terms. And 2 initiatives to further strengthen liquidity, which provide an additional EUR 400 million layer. As a result, our KPIs are improving. The weighted average maturity of the group's debt is now of 5 years compared to 3.4 years previously. The average cost of debt after hedging is also slightly improved and stood at 2.38% versus 2.45% a year ago. The liquidity position at the end of June '21, including cash and undrawn credit lines stood at more than EUR 1.9 billion. Now back to Rodolphe to speak on the outlook.

Thank you, Sandrine. As a reminder, our strategic road map is based on 2 pillars: The first aims to maximize the cash generation of our heritage businesses in order to fund our transition towards high-growth verticals whilst continuing to deliver a high level of shareholder remuneration. And the second focus is to deliver growth in the connectivity verticals, and with 2 different time horizons. First, medium term, GEO enabled growth, notably in fixed broadband via KONNECT and KONNECT VHTS satellites and in other applications via selected geostationary investments such as QUANTUM and EUTELSAT 10B. And second, LEO enabled to address telco needs in the longer term via our strategic investment in OneWeb. Our operational priorities for fiscal year '22 are driven by this 2-pronged strategy. Our cash flow generation -- on cash flow generation, we will continue maintaining all components on the tension, in particular, fully delivering on our LEAP 2 cost savings plan and ensuring we receive the C-Band proceeds in full in fiscal year '22, which is almost fulfilled. With regards to GEO enabled connectivity growth, we focus on the commercialization of EUTELSAT QUANTUM, the securing of further large wholesale agreements in fixed broadband, further ramping up our African broadband operations, preparing the ground for the arrival of KONNECT VHTS and EUTELSAT 10B in fiscal year '23. And finally, we will work on rolling out our EUTELSAT Advance managed services, which could be used as a common platform for GEO and LEO assets in the future. Regarding LEO-enabled growth, our focus will be on the finalization of our investment in OneWeb and the development of commercial and technical cooperation with them. Turning to our assumptions for each operating vertical in fiscal year '22. The direction of broadcast revenues is expected to be broadly similar to fiscal year '21 as it will be impacted by the carryforward effect of the slowdown in new business prevalent during most of the fiscal year '20. The trend is expected to improve thereafter. Data and Professional Video will continue to decline, albeit at a more modest pace, thanks to improving volume trends in the Fixed Data segment. Government Services revenues will continue to be driven by the outcome of past and upcoming U.S. DoD renewals. It will also embark the initial contribution of EUTELSAT QUANTUM expected in the second half. With the full availability of the EUTELSAT KONNECT satellite, fixed broadband is set for substantial growth on the back of the full effect of wholesale agreements as well as the acceleration of KONNECT Africa. Mobility. We'll continue to experience a high degree of uncertainty regarding the recovery of the Aero segment but will benefit from the full year effect of the Global Eagle contract and continued momentum in the maritime segment. Looking further ahead, the next few years are set to mark the end of the negative top line trend with the arrival and ramp-up of very substantial incremental capacity, much of it with firm precommitment. EUTELSAT KONNECT is already significantly derisked with wholesale commitments from Orange and TIM. EUTELSAT QUANTUM is set to be launched tonight with an entry to service at the beginning of the fourth quarter of calendar 2021 of this calendar year, positioned at 48 degrees East and with its unrivaled flexibility and joint distribution agreement with Intelsat, it will represent a compelling offer for government customers. HOTBIRD 13G, which is mostly a replacement satellite for broadcast will also carry an incremental EGNOS payload, which will bring some EUR 7 million in annual revenues over 15 years from January 2023. KONNECT VHTS will start operations in H1 of 2023, with 500 gigabits of VHTS capacity and some commitments with Orange, Thales and TIM. It will represent a major milestone in our connectivity strategy in Europe. EUTELSAT 10B due to start operations in H1 2023 also will bring 35 gigabit per second of incremental HTS capacity for mobile connectivity over EMEA. It is partially precommitted by Gogo and Panasonic. It has also a firm precommitment from Overon for regular capacity and will hopefully see a recovery of the Aero market by then. And finally, EUTELSAT 36B predominantly a replacement satellite for broadcast due to start operation in H1 2024, carries also an incremental UHF payload operated by Airbus. Firm precommitments for the incremental capacity that I have quoted already represents a backlog of over EUR 750 million with an average contract length of around 11 years. As a result, we expect to generate revenues from the 5 operating verticals of between EUR 1.110 billion and EUR 1.150 billion in fiscal year '22 at the euro rate of EUR 1.20. Taking into account perimeter and currency effects, this equates at midpoint to a 3% organic decline versus fiscal year '21. Thanks notably to the upcoming committed capacity revenues are expected to grow from fiscal year '23 onwards with an acceleration in fiscal year '24. Cash CapEx will not exceed EUR 400 million per annum for each of the next 3 fiscal years. This represents a slight improvement compared to the previous objective, which was an average of EUR 400 million. Our objective of adjusted discretionary free cash flow for fiscal year '22 now stands at between EUR 400 million and EUR 430 million at the rate of EUR 1.2 to a dollar, representing a EUR 30 million uplift at comparable currency versus the previous objective, taking into account of a EUR 20 million commercial impact. It is expected to grow in fiscal year '23 and in fiscal year '24. We remain committed to our medium-term leverage target of around 3x and to have stable to progressive dividend policy. A few words to conclude now. Even in the face of the COVID crisis, we have generated a sustained level of free cash flow in fiscal year '21 and raised our fiscal year '22 objective by EUR 30 million in that metric. This enabled us to propose a 5% dividend increase, which is amply covered by free cash flow. We are seeing the first sign of a tangible acceleration in fixed broadband, which will amplify in the outer years. As a result, fiscal year '22 is expected to be the last year of transition with revenues and adjusted GFCF set to grow from fiscal year '23. This will be supported by incremental capacity coming onstream with substantial firm precommitment. And finally, with the OneWeb deal, we have access to 1 of the very few future global LEO constellations, which represent a critical infrastructure to address long telecom needs. I thank you for your attention, and we are now ready to take your questions.

[Operator Instructions] We'll take our first question now from Mr. Roshan Ranjit of Deutsche Bank.

Just 2 for me, please. On the -- is it possible just to break down a bit more into the revenue outlook, please, and particularly around Broadcast. You're saying that you expect a similar trend to this year, so minus 4%. But I would have thought maybe given as you have well flagged the free-to-air slow down, some of the new channels coming on at the end of this year, just completed, being pushed out into this coming year, we would see maybe a slight -- a better trend in broadcast as a result of that catch-up maybe. And tied to that, possibly to get your kind of view on the big renewal, which you've kind of, I guess, had to bake into the guidance and how we should think about that being embedded into the outlook? And secondly, just on the margin front, you highlighted 2 impacts, this year, the bad debt. Is it possible to quantify that? And also on Bigblu, again, I was thinking that we wouldn't see a kind of massive dilution given, I guess, the retail component would have only started ramping up maybe this year, maybe I was a bit slow on that take up. But anything pronounced there on the Bigblu dilution? Thank you.

Well, thank you for those 2 questions. I'll start with the question on the EBITDA margin. Our EBITDA margin stood for fiscal year '21 at around 75%, just below 75%, 74.7% to be precise. Slightly in recess in comparison to the previous level, which was in the order of 76%, between 76% and 77%. And there's three elements which have affected negatively our EBITDA margin. First, of course, there is the lower revenues which, as you can probably calculate by yourself represents around 1 percentage point of erosion. There is the one that -- there's a one-off effect of bad debt. And there is the dilutive effect of BBB, which is around one percentage point worth of EBITDA margin. And there is the broadband cost, we have continued to invest in that vertical. And this is the negative factor -- effect, one of those factors, which is significant, is related to bad debt and should not continue into fiscal year '22. And all those negative effects were partially offset, but not totally as you can see, by our efforts in terms of cost control and notably our LEAP 2 program. In the Broadcast revenue profile, we expect our fiscal year '22 to be in the same vein as what we saw in fiscal year '21, notably because the deceleration we have seen in fiscal year '21, which is due to a lack of new channels joining us, particularly in this situation of COVID will have a sort of carryover effect into fiscal year '22. But we see some signs of normalization in that respect, meaning that we believe that, while, fiscal year '23 -- '22, sorry, will be the same kind of trend as fiscal year '21, but the profile in the broadcast segment should come back to a normal and to improve slightly after that as of fiscal year '23 and come back in a sort of low single-digit pace of decline. That -- I think if that answers your questi on Broadcast.

I mean I would have thought that some -- why wouldn't the kind of delayed channels from the end of last year just completed benefit the growth this year? Why is it more a '23 impact?

I'm not sure I get your question. The -- we had less new channels into fiscal year '21, meaning that the revenues we should have generated from those new channels, we won't have them in fiscal year 2022, and that's the carryover effect I'm mentioning, which is what -- which is a generating part of the more pronounced decline we see in fiscal year '22. And that's why we think fiscal year '22 will be in the same kind of revenue trend in Broadcast as fiscal year '21. But we won't have this effect after that. And fiscal year '23 onwards should be back to our normal, which is a low single-digit recess in the Broadcast segment. And I think that's it, yes, it's as simple as that.

Okay. That's clear. And then you could say on the renewal, the Nilesat renewal, please?

Sorry, I forgot this part of your question. Well, no big renewal in fiscal year '22 except the discussion we are having with Nilesat. While nothing really new to comment on this question. The negotiation is still underway, and I have nothing to say on the [indiscernible] specifically at this stage on this question unless that only that negotiation is not over. As I said before also, we have very strong distribution -- internal distribution capabilities in MENA, in the Middle East and North African region, since the acquisition of Noorsat which was the leading distributor of video capacity in the region. We acquired them back 5 years ago, I mean that we are very strong capacity of our own, very capable, which enables us to lead effectively our commercial and marketing strategy the region and which has enabled us to constantly grow price in the region, which means that we have an alternative either go wholesale through large distribution deals in the region or take the distribution in our hand to continue to foster our own distribution strategy and our price growth objectives. And of course, when we discuss with our partners, we always compare the 2 leg -- the 2 options we have. Either to have the capacity to distribute by ourself or distribute through them. And we're exactly at this position and in this situation when we assess the negotiation with Nilesat, but well beyond those principle, there is not much more I can comment given we are just in the middle of the discussion with our current customer.

Thank you very much. We'll move on to our second question. It's from Mr. Sami Kassab at Exane.

I have a few questions, starting with Nilesat, please, Rodolphe, I understand it is a sensitive topic and perhaps there is nuances to my questions, but I have 2 still. The first one is, can you help us understand the timing of the impact, whatever the outcome may be? When is the contract maturing? Or when should we expect any related impact? Is it in Q3, in Q4? And secondly, is it possible to share with us the assumptions that you've taken in your guidance, in Video Broadcast in fiscal '22 with regards to this major renewal? And the second question is on FRANSAT, a little bit of perhaps outlook for FRANSAT. It seems to be declining last year. Is there a positive calendar effect on card renewal, for instance, in fiscal '22? And lastly, what is the cash tax? Can you remind me the cash tax on the C-Band proceeds please?

Well, first question on the Nilesat. The -- well, the contract is expiring during the course of this fiscal year, in the first half of this fiscal year, and there is nothing more I can say on that. as I told you, I have no specific worry on that question. It goes different from other regions. We are not tied to a wholesale distribution strategy in the region. And the reason why we can be particularly demanding in the renegotiation with our customer in MENA region. That's because we have an alternative of our own, which is very, very effective. And as you know very well, the growing part of our Broadcast business has been twofold in the past few years, that's Africa, and that's Middle East and North Africa, our 2 regions. And the reason why we grew in MENA is not because of volume because our capacity is almost full in MENA at 7/8 degrees West. It's because we have been able to increase price and why we have been able to do that because we are -- we have decided to take control of our distribution in that region. In that what we do is very, very effective. It's not a sort of compensation, but that is very effective what we do, and it does generate a very positive result for us in. I think that we are in [indiscernible] , which is very strong, and that's why we are quite demanding and tough in the renegotiation we have with our customers. And that's why this negotiation with Nilesat is taking so much time. It's for the good of the company, meaning that it's not a negative signal that you should see. It's a tough negotiation because we have a strong position. We have strong negotiating position, strong bargaining power, as you say that in English with our customer, and that's why it takes time. But it doesn't mean that it's something negative per se. FRANSAT, well, it's a very low business. It's mid-single digits in terms of annual revenue, well, lots of volatility from 1 quarter to another, but clearly not a material topic we should focus on at this stage. And sorry, I may have missed your last question.

It was on the cash tax of C-Band proceeds.

Cash tax on C-Band proceed, maybe I'll ask Sandrine to answer on that question, if you may.

Of course. So the cash tax on the C-Band proceeds are expected in the range of 30%, 3-0- percent on the USD 507 million which means approximately USD 150 million of cash tax. That we expect that the vast majority of this amount will be paid during fiscal year '22. So under the same year as we will be receiving the proceeds.

We move on to our next question, Mr. Nick Dempsey of Barclays.

Just to have another kind of look at the margin profile for FY '22. So we don't have the same bad debt problem as we had in FY '21. So that's helpful year-on-year. You've got a full year of BBB Europe, when you've had only part year in FY '21. You've got revenue decline guided, and you've got the rest of your savings coming through. It strikes me when I put those together, it looks potential -- there's potential for the margin to reduce a bit more in FY '22 versus FY '21. But can you give us any indication around the sort of building blocks there? Second question. Can you give us some more detail on the kind of signs of normalization you've seen in terms of new business from smaller TV players? Is it just that one contract that you pointed to in the release? Or can you give us any other color there? And my last question. In terms of the shape of the year for Broadcast Video, you're kind of pointing towards 4% down for the full year, but will it be worse in the first half, better in the second half?

Thank you, Nick. On your first question on margin, as you know, we don't guide on the EBITDA margin. Our 2 main metrics are revenues and cash flow generation. But still, well, we do follow EBITDA margin internally of course, as you can guess. And what I can tell you is that while our objective is to maintain our EBITDA margin at the current level. And we do that. Of course, there are negative factors that you have highlighted well. Revenues for the last year in negative territory in fiscal year '22 and the full year dilutive effect of BBB, while some elements of improvement in fiscal year '22, the reduction in the bad debt burden. The further reduction in the cost base through our the implementation of the second phase of our LEAP 2 program. And all in all, we will be able to sort of broadly stable EBITDA margin in fiscal year '22. And my long-term goal is to stay in this order of magnitude, which I believe is the right level for a business of telecom infrastructure like ours. The second question on broadcast normalization, we have seen recent contracts in the broadcast segment with a return to the addition of new channels. And as you can see, the channel count is well-oriented. Maybe, Michel, I don't know if you wanted to give more color on that question.

Yes. Maybe just to mention that, yes, there is a contract with a global broadcaster in fact, U.S. broadcaster. This is for distribution to cable networks in Europe. It's new business that we are getting there. And there is also an interesting development in Italy, which relates to the Italian switchover like freeing DTT spectrum for mobile in the 700 megahertz band that naturally attracted new channels, which are pushed out of the spectrum of the terrestrial spectrum to satellite, and then we would benefit from that a little bit later in the year. These are the 2 main, let's say, contracts that we were referring to speaking about this normalization. I would say, by the way, that the DTT situation is not unique in Italy. It's -- we've seen that with MultiChoice when we got the MultiChoice business, and there is another country in Europe where currently we are in the same situation, hoping to get a new business from the DTT distribution perspective.

Maybe, Nick, on the margin, Sandrine speaking, as Rodolphe said, so on the positive side in fiscal year '22, we will have the full amount of the LEAP 2 program. So EUR 20 million to EUR 25 million, which will be almost twice what it is in fiscal year '21. The bad debt, it has already been mentioned by Rodolphe, but just maybe to clarify the other point on the dilutive impact of BBB. Next year, we will have the combined impact of the acquisition of BBB, but also the sale of EBI. And next year, the combined impact of the change in perimeter is expected to be slightly positive to the EBITDA margin. So what we have had this year will not be at all under the same profile next year. I think maybe it's another piece of information to give to you.

I'm sorry, is it slightly positive versus all of FY '21 or slightly positive versus the period when you're in the current situation with BBB during FY '21, if that makes sense.

It's compared to '21.

All in '21. Okay. That's helpful. And just I had a question on the time the sort of phasing of the growth in Broadcast Video through the year, just to not forget that one.

Well, the video segment will be slightly improving. The trend will be slightly improving across fiscal year 2022. Since the -- as we said, we see now normalization in the addition of new contracts of new business in the broadcast segment, which will progressively impact our revenues into the fiscal year '22.

Our next conference comes from Nicola Gifford of Goldman Sachs.

My question was on free cash flow. You're now guiding for strong free cash flow in the coming year ahead and you've raised your dividend. Just some clarity on what's driving that confidence? And related to that, is there any update on your buyback program, which was suspended during the uncertainty during COVID?

Well, buyback program is still suspended, no news on that. Cash flow, why are we confident? Well, it's the focus of our of our current strategy. And as long as our top line remains in negative territory. We will focus on growing our cash flow line. And what gives us confidence, should I say, it's not very humble to say that, that's not very modest. But we have been doing that quite well. over the past years, as you've seen by yourself in the slides we have shown before. We have grown our cash flow generation from the sort of pace of EUR 250 million before fiscal year '16 to between EUR 450 million and EUR 500 million adjusted free cash flow currently. And it's a bit our new normal, I would say. It's our focus, and we execute well. This year, the cash flow growth will come from an optimization of our cost line, again, as I told before, we are implementing a cost-saving program that we call LEAP. And we are just in the middle of this cost-saving program, and we have still around EUR 15 million of savings to generate in fiscal year '22, which will add to the cash flow line. And we are also quite focused on further improvement of the other levers of our cash flow lines, and notably the working capital line. And after 2022, the growth in cash flow will be fueled by the return to growth in revenues, it will be easier at this point in time to generate cash flow growth.

And maybe if I may add one specificity for fiscal year '22 in relation to the CapEx. In the light of the very strong cash generation in '21, actually, we have been able to make some anticipated payments on some export credit financing or lease liabilities that will give us headroom for fiscal year '22 on the CapEx line also. So that should support the cash flow generation in '22.

We'll go to our next question now from Mr. Aleksander Peterc of Societe Generale.

Just a question for Sandrine really. Can you please break down the exact like-for-like revenue decline in fiscal year '22. So what is the component of FX? So I think it's about 0.5 percentage point, but correct me if I'm wrong. What's the perimeter and what is the like-for-like exactly. And then secondly, I'm not sure I quite understood on the government directionally, if you're guiding towards an improvement because you have good renewals in the latest campaign. Or will there still be the drag effect from lower renewals in prior periods that are going to affect '22? I just -- I'm not sure I got the direction of movement there.

Sandrine, do you want to take the first question, which was addressed to you.

Yes.

I could try. I could try to do it also. But I don't want to spoil your moment.

So Alexander, when you look at '21, '22 on a like-for-like basis, so we will have a perimeter impact that relates mostly to the disposal of EBI. And on the other side, the acquisition of BBB. The total impact is expected to be around EUR 30 million on the revenue line. And there is also, of course, the currency impact. When you look at the exchange rate of '21, which is at EUR 1.19 and the exchange rate of '22, which we expect to be EUR 1.20, the currency impact should be in the range of minus EUR 4 million.

Thank you, Sandrine. Maybe I'll take the second question, which was on the Government Service revenue profile in the next few years and specifically in fiscal year '22. Well, as you know, we don't give guidance for -- well, by vertical. But if you want an orientation, we have some negative elements affecting the -- this line, the Government Service revenue and notably the carryforward effect of the renewal rates we had before with the U.S. DoD. And we have the positive effect, which is substantial of QUANTUM satellite, which we are launching tonight. And net, we estimate that this segment should be broadly stable in fiscal year '22. That's the kind of broad answer I can give to you on this question.

Moving on to our next question from Mr. Giles Thorne of Jefferies.

My first question is on commercial momentum in Africa and Fixed Broadband, noting the Yahsat IPO and the very large primary that they did, they look to be very, very well capitalized with no immediate plans for any type of satellite purchase. So it looks like a lot of that money will go into customer acquisition on the ground. So some comments there maybe from Michel. The second 2 questions, turn back to LEO. ORCHESTRA was announced yesterday. What do you think? And thirdly or second question on LEO. We've now got 5 LEO constellations that look like they will actually happen. And I would bet that not a single CEO amongst that 5 believes that the market can support 5 constellations. So I just want to know, Rodolphe, why does the industry keep doing this?

Okay. Well, on the first question, I think when you suggested that Michel might give us some locations. Michel, do you want to?

Yes, sure. The momentum is, in fact, quite good for KONNECT Africa. We -- by the way, we have migrated now where we're finalizing the migration from the Yahsat satellite to our capacity. So everything will be on KONNECT starting in August. There is -- there are good developments in the distribution network. We have added distributors in South Africa, in particular, with initial good results in Zimbabwe as well with initial good results. We're progressing on the B2B market as well with new significant leads in B2B for the year to come for fiscal year '22. And we have some business with the governments in different countries. It will take longer to, let's say, to materialize because funding is critical for that, but there are a number of fleets. We're opening new countries. We are about to start in Tanzania where just got a license a few weeks ago, and we'll probably also start with Kenya. So all in all, in community Wi-Fi, as it was highlighted by Rodolphe is progressing well. And in fact, Facebook is quite excited by our partnership that we will now roll out outside. We currently have 150 villages connected in DRC and now the time has come to get into other countries and to significantly speed up what we're doing in DRC. So there are number of a mix of good news. Of course, it starts from low level, but it's an interesting, let's say, progression of our activity in Africa with KONNECT.

I'm sorry, Rodolphe. I'm just interested to hear if you feel the competitive presence of Yahsat on the ground.

Yes, that's what I was on the brink of answering because I see that Michel has omitted this part of your question. We don't see any enhanced competitive pressure for the Yahsat. And what I should say is that this market -- connectivity market is not a market share game at all. It's a market development game. Meaning that the market is not saturated. The latent demand is gigantic. And our efforts don't target well, at competitors and don't aim at gaining market share from them. We are trying to develop the market, and we see absolutely no effect at this stage of any competitive pressure. The market is big enough for all of us. We have to address the logistical issues, to convince customers to what -- and to solve many operational obstacles. But it's sort of internal efforts that we have to do and convince the market rather than trying to steal existing customers from our competitors. And that's what I would say. And it turns me to your second question, which is the -- our view of the LEO market and the intensive -- the competitive intensity in that market. And you are sort of underlying -- you are -- well, you're sort of underlying dots as I understood your question on the viability and the profitability of our strategy in that respect. What I think -- and it's not what I think, what you said also, but I think all the experts in the industry have the same view, the low orbit constellation will be in a very limited number, very limited number, probably 4 or 5 in total for physical reasons. There cannot be more than a very limited number of low orbit constellation, probably 4 or 5. There is still a question mark on this -- on the precise number, but a very limited number. And the question is then, well, is the market big enough to sustain 4 investments or 5 investments of that kind? What we believe is that the market is far bigger than 1 -- those 4 or 5 constellations can produce in terms of capacity. If you imagine that today, the total global telecom market represents $2,000 billion. And that's our vision, and I think that's the vision that's shared by all the new entrants in that sector. And that's why it creates -- it attracts very large appetites of large players like Amazon and SpaceX. That's because if we only imagine that in the long term, the mission of low-orbit constellation is to bring to unserved areas, areas which are not covered well by terrestrial infrastructure and which we imagine that in the next 20 years, those areas represent 5% of the total global market, 5% only of the total population globally, which is a very, very, very conservative assumption. As you can imagine, the market at stake is absolutely gigantic. We speak tens of billions of dollars, 50, 60, probably more than that. And if you do the math and if you calculate the CapEx involved for each constellation, which is between $5 billion and $10 billion, depending on the size and the market at stake, which is dozens of billions of dollars, you can realize by -- you said that when the market is fully developed, the -- well, there is room enough for us. And the profitability will be very, very solid. The key question is the LEO business is not really around the market potential. The question for me is in the length of time, how much time will it take to reach to the run rate? That's the only question. The size of the market and the nature of the competitive intensity is of no real meaning in that question. Go ahead.

Sorry, Rodolphe. But we understand -- I think everyone understands it's a very big market. and the latent demand exceeds the announced and upcoming capacity. But is it better to have 5 operators provisioning an OK service or just to have 3 operators provisioning an outstanding service that can truly, truly crystallize that latent demand. Because when I sit and listen to Starlink talking about spending $30 billion on LEO to have a service that's basically -- that avoids customers churning at the end of the year, it makes me wonder why we have fragmentation at the operator level.

Well, I could argue that well the same question applies to the terrestrial telco. Why are there 4 operators in France, 4 operators in the U.K., while we could do with 1. But that's business, there is competition. And we think there's profitability to be driven by -- well, by all the players in this in this respect. Second question -- so a second element I'd like to highlight this one is I understand it's a bit sort of a necessary principle for you, which is not very interesting, but which is more of substance. There are different segments in the telecom market. There is the consumer segment and Starlink is addressing that segment, and they are developing a network and a service that's addressing that segment of market, which is undoubtedly and with no question, very, very big. That's not what we do. We think that there is also demand outside of the footprint of terrestrial telcos for low latency capacity demand in the B2B segment. In the aviation, in maritime, mobile backhauling segments, and we are addressing those segments. And what we want to do with OneWeb is develop an infrastructure, design an infrastructure, which is fit for that mission for that purpose. And that's what we will do with Gen 2, when we have learned more, when we have more market feedback that we're generating through Gen-1. We have probably the more comprehensive, the more detailed, the more profound understanding of our customers' need in those segments that's what we're targeting. And we have the best possible infrastructure for those segments of the market. And that's the way I see the market structuring in terms of commercial, but also technically, and in terms of infrastructure design. Probably there will be a sort of specialization on big, big vertical. Is your question on ORCHESTRA? I don't know if I'm done with this, if we are done Giles, with your question on the LEO.

Thank you, Rodolphe. Thank you very much for the answers.

Well, you had a last question on ORCHESTRA, the announcement, which was made, I think it was yesterday by friends of Inmarsat. They announced the launch of a low orbit constellation to complement their the global express GEO constellation coverage. We have seen that with interest in the sense that it shows something that we think we are not talking that today yet. But that in the long term, the complementarity thing between LEO and GEO. And our view of the future is that, well, the systems of the future will be made of LEO to bring universal low latency coverage and GEO to complement that and to bring incremental capacity at the point of congestion of the networks. And in that sense, it brings some elements of confidence in our own vision, technological strategy. Second element of answer, I'd like to bring the low orbit project, which was announced by Inmarsat is a very small and modest project in terms of CapEx, as you know, but also a number of satellites, very small constellation. And it's operating in L-Band, if my understanding is correct. Well, meaning that, well, we don't see that really as a strong new contender entering into the LEO market, which will remain structured around 4 to 5 global players Starlink, Amazon, us and probably 1 or 2 others.

Thank you. We'll now take our last question from Sarah Simon of Berenberg.

I've got 2 questions. First 1 was back to Nilesat. Do you know if all of the capacity you have sold to them is currently commercialized. And then the second one was on your managed services solution. If we think about what your closest peer has said about managed services. Generally, because it has a higher degree of kind of variable OpEx, although it's obviously good at selling capacity, it's been margin dilutive. How do you think that business is going to impact margin going forward?

Well, on Nilesat, I'm afraid I cannot give you much detail on the question you asked. Of course, we know very well the capacity utilization of our large customers. But I'm afraid I can't disclose those elements, which are part of the business metrics of our customer. And I'm not certain they would like us to disclose that information in the marketplace. But there is some capacity which is not utilized. We do that very well. And it's perfectly part of our acquisition of the merits of renewing with them or taking the capacity by ourself. We have that very well in mind and of course, we comprehend those elements when we design our commercial strategy in the region. Second question on managed services. Well, it's -- the EBITDA margin we generate on our managed services is relatively good actually in the same order of magnitude as the average EBITDA margin we generate at the group level. Why? Because with today's technology, we can deliver very -- pretty much automated managed services, which means well, a lower dilution effect for those services than in the past. And probably one of the reasons why we didn't decide before to go for those managed services that's because it was very heavy to implement in terms of human resources. But with today's technological capabilities, the development cost is -- are far lower and -- well, don't impact substantially as we see them our EBITDA margin -- our average EBITDA margin.

Thank you. I'll pass this call back to you, speakers. Please go ahead.

Well, thank you for your presence today, I will conclude with a few words saying that while we have delivered, we think, a strong set of results in fiscal year '21 with revenues at the very -- at a very high level of our guidance range and our -- and very strong delivery on the cash flow metric. Very solid profile also for the future after a last year of recess in fiscal year '22 in terms of revenue. We will continue to produce very robust cash flow, and we're elevating our cash flow guidance for fiscal year '22. And after fiscal year '22, as of fiscal year '23 onward, we see a return to growth with an acceleration of growth on the backdrop of the massive incremental capacity that's coming online in the connectivity segment, and that's truly the beginning of the connectivity pivots of EUTELSAT. Thank you for being with us, and have a good day.

Thank you, everyone. Thank you for joining our call today. You may now disconnect. Thank you very much.