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

Hello, and welcome to Eutelsat Group Trading Update. Please note this call is being recorded. [Operator Instructions] I will now turn the call over to Eva Berneke, CEO. Please go ahead.

Thank you. Good morning, and thank you all for joining this early morning call at a short notice. I'm Eva Berneke, I'm the CEO of Eutelsat Group, and I'm joined here with Christophe Caudrelier, our CFO. The objective of this call is to provide an update of what we are seeing with current trading. As you know, we've been trading as a combined Eutelsat OneWeb Group since October '23. And over the past 4 months, we've undertaken a deep and granular assessment of where we are in the current business. So, let me take you through a few of the highlights. Our legacy Eutelsat businesses are on track with the return to top-line growth for the financial year 2023-2024 based essentially on the entry into service of new satellites with EUTELSAT 10B and KONNECT VHTS. The results of the LEO activities of OneWeb is also progressing well, but are running behind schedule relative to the original roadmap. The initial delay of satellite launches is now mitigated. And since January, we have all the satellites in place. However, the ground infrastructure shows 2 key reasons behind a delay in terms of preparation of full ground infrastructure. Firstly, a delay in the availability of the ground network that impacts revenue, especially mobility, and in certain geographies where market access is still outstanding. We now have a much better assessment of the various stages of this ground rollout. In addition, and secondly, a revenue mix that's more oriented towards the sale of user terminals, which is important for ramping up revenues. However, this impacts margins. The deployment of the ground network is progressing well and towards a 90% completion during the Q2 of '24. However, that's our Q4 in our financial year. And we continue to see a very strong momentum in the take-up of pre-signed commitments, what we call take-or-pay, with major customers. So we remained very confident on the commercial customer interest in the capacity. Nevertheless, this dynamic will not suffice to close the gap relative to our near-term expectations in this financial year. And in consequence, we are adjusting our financial objectives for this financial year, '23-'24, with revenues now expected in the range of EUR 1.25 billion to EUR 1.3 billion, and an adjusted EBITDA in the expected range of EUR 650 million to EUR 680 million. Cash CapEx is expected to remain in the previously guided range of EUR 725 million to EUR 875 million per annum, on an average from '25 to '30. And CapEx for this financial year is expected in the range between EUR 600 million and EUR 650 million. For the financial year '25, we are suspending our previous objectives to allow for more accurate assessment of the prospects in the context of the rapid development of OneWeb's businesses. And we'll update them on the occasion of Eutelsat full year results on August 2, '24. In the meantime, as a reminder, we'll report our first-half results on February 16, where we also have an opportunity to go into more detail than today on the individual businesses. And of course, a lot of the things that you might want to ask at this occasion, we cannot necessarily answer today. So with that, thank you for your attention, and I'm open for any questions you might have, and Christophe will help me potentially answer them. Thank you.

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

I've got 2, please. I guess, they're kind of related. You have suspended the FY '25 guidance, but reading the commentary suggested, say, slower ramp-up of the OneWeb business. And Eva, you mentioned some of the take-or-pay deals. If that's the case, why haven't you kind of got that longer-term visibility on the FY '25 guidance? I mean, is it just this ramp-up take even longer than you had anticipated? Maybe tied to that, we were expecting global coverage of the OneWeb network, I guess, around now, I think you said early '24. Is that expected to be a bit slower now? So we're still dealing with the kind of North America, Arctic coverage at this stage?

Okay. Let me maybe take the second first, because it's true that we had expected global coverage by early '24, so around now, you're right, which is true also for the satellite coverage. So the satellite coverage is actually in place. However, to actually fully utilize the capacity, the ground network is also necessary. And ground network is building of gateways, which are needed. We need around 40 gateways, and we are around just below 30 right now of those gateways, which means that for certain geographies like India and Saudi Arabia, where we have significant take-or-pays, we are still waiting to this gateway being operational ready. Then there are other countries where the landing rights, either of our own or our distributors, are still outstanding, pending. And again, India is in the very final phases of that, but also Thailand and a few other countries, Turkey, still have landing rights outstanding. So that's what we expect to be at 90% finalization in Q2. There's still going to be a few gateways that might be only finalized in the later part of the year to get to the full global coverage. So that's the granularity we're getting on the actual build out of the OneWeb. And we've also tied that closely into where the take-or-pays, because as soon as the network will be operational ready and landing rights are secured, we'll be able to actually start converting into revenues. Which is also why we are suspending also the '25 guidance, but I'd also say it's probably a little bit as we have always been guiding. We have never been guiding far into the future. We've been guiding for the end year performance. And given that, we'll have a lot of this finalization in the network in Q2 and over the summer, I think the ramp-up of revenue is just very uncertain. We believe that it will come, but giving you very precise numbers for '25 is simply not possible right now when we expect this kind of rapid growth for the next couple of years. Based on actually an increasing pipeline of committed deals, which continues to go up across different geographies.

That's great. And sorry, just so I may add, just on the kind of, I guess, extended delay now, you talk about the 1 point -- or you refer to the $1.1 billion backlog. Can I check, is that fully protected or what component of that is protected? Is there a risk to that given the delay, I guess?

To the $1.1 billion pipeline, as you know, it's a typically an average age of contracts with 5 years, and a lot of them actually -- or they are confirmed. They're certain. You do out of the $1.1 billion -- and we'll probably start netting that out. It's the Eutelsat take-or-pay of $275 million. So we will start netting that out, but we have seen continued increase with a couple of new take-or-pay signed just over the last month or 2. But it is secured business. It will be built as soon as the network is operational. And there's no dependency or no kind of cut-off date for this. It simply needs that the gateways, as you know, there's a large one in Saudi with NEOM, the gateways as one gateway operational with a second 1 coming. So we're slowly starting to actually convert that into revenues as well. So know that, that pipeline is secure and continues to grow.

[Operator Instructions] We will take our next questions from Tom Singlehurst from Citi.