Half Year 2025 Eutelsat Communications SA Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Roshan Ranjit - Deutsche Bank AG - Analyst : I've got three, please. You mentioned and highlighted in the release the increased vigilance on GEO and Christophe mentioned the headwinds. Is this driven by kind of cannibalization of the GEO business from LEO? And I guess, if we think about the LEO business, that ramp-up, is that enough to kind of offset the new kind of GEO decline that you are highlighting today? Secondly, and tied to that around the normalized GEO CapEx, you've provided the envelope for the LEO extension, EUR2.2 billion over four years, so roughly just over EUR500 million a year. How much GEO CapEx should we layer on top of that? Are we still thinking over the midterm, EUR700 million kind of EUR800 million annual CapEx prior to IRIS2 started or IRIS2 CapEx started? And lastly, just a quick question. We've seen a lot of noise around the C-band development, potential new auction. How much C-band do you guys actually have that you could monetize? Eva Berneke - Eutelsat Communications SA - Chief Executive Officer, Executive Director, Member of the Executive Committee Thank you for your questions. Those are important. The vigilance on GEO is, of course, a key element. In terms of the headwinds, I think, especially in what we would call B2C connectivity, it is clear that that is where especially Starlink is picking up a lot. And by the way, also driving a bigger market. So we see in our market estimates actually market estimates or addressable market for B2C connectivity from space actually being increased continually. And in that segment for B2C, it's very clear that we see headwinds. And as you know, we do have Konnect VHTS satellite, which was specifically targeted for B2C connectivity over Europe and Africa, and that's where we've seen those headwinds specifically there. And I'd also say we are looking at alternative losses, especially within the mobility segment for the Konnect VHTS satellite. So we hopefully will be able to -- or we will be able to use it also for other things than pure B2C connectivity. So yes, we do see, especially in the B2C segment, a move towards LEO on the connectivity. Now you'll say B2C is not our key focus, and that is absolutely right. We are a B2B player. But we do also see Starlink starting to come into some of the B2B segments as expected. We'd expected that Starlink would also start addressing the large B2B market. So that's seen in mobility, especially in maritime mobility. And you've also seen some of the announcements on Aero, where we also have a very strong backlog on Aero and Starlink is starting to come in there as well. So it is clear that we do see some of that also being a switch between GEO and LEO in the connectivity market. We still expect to see the connectivity market being a very strong growth market in total. The LEO extension and the GEO CapEx is, of course, and just given your first question, you'll be happy to hear that, of course, we're being very vigilant on our GEO CapEx going forward because if it's a switch we're seeing and we're seeing the market trend slightly more negative on GEO REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 14, 2025 / 8:00AM, ETL.PA - Half Year 2025 Eutelsat Communications SA Earnings Call compared to LEO, that is a key one. So that is something we're looking at in the next -- over the next five-year period. And we have also in our outlooks there, pinpointed a few places where we'll be very vigilant on the GEO CapEx in terms of how we renew it. That goes, of course, for video, which has been a trend for a while with mid-single-digit declines. So of course, there, everything we can do in terms of being smart about how we renew long-term strategic assets, and that will go also for GEO connectivity. On the C-band, we do note the recent comments by the FCC. We don't know exactly when or if at all, it will be repurposed. We do have the capacity on three satellites, 172, 115, 170, and the later two are over the Konnect that is relevant. So we will have a little bit less than we had previously because we no longer have the 113, which counted in the previous C-band round, but we will have our -- if it moves forward, we will, of course, have our relatively small part of the C-band. The majority, as you know, is with SES and Intelsat should this move forward. But right now, we simply don't know whether this has been just a discussion. By the way, you know the discussion has been going up for at least a couple of years now. So still no confirmed timeline on it.

Question: Mark Watts - Citigroup Inc. - Analyst : Just a few points here. So on the ground terminal proceeds, can you just clarify what the lease cost will be going forward on a cash basis? And also of the EUR500 million cash proceeds that you mentioned, what the intended use might be there? The second one is just on the bond side on the refinancing and capital allocation. So how are you thinking about the kind of the '27 wall? It's fairly sizable out to '29. So keen to understand how you think about the interest cost side of the business, if I could. Eva Berneke - Eutelsat Communications SA - Chief Executive Officer, Executive Director, Member of the Executive Committee So let me maybe start with the second one and come back. I'm not quite sure I got your first question. But the second question is, of course, we have a '27 refinancing. And as we put out, we are looking at various financing options. Now we have both the IRIS2 CapEx and also our bridge CapEx clear. It is looking at the various financing options is one of them that can go through partnerships. Of course, we're exploring quite a lot of export finance as well. And also how we time the -- especially the IRIS2 CapEx will be towards the end of the period. So with that, we are looking at various financing options actively in this moment. Christophe, do you want to take the one that I didn't get, maybe you got it?

Question: Mark Watts - Citigroup Inc. - Analyst : And then, sorry, can I just clarify that at the end of the year, there were obviously some headlines around system outages? Do you mind just clarifying what happened? Eva Berneke - Eutelsat Communications SA - Chief Executive Officer, Executive Director, Member of the Executive Committee Yes, we had a software glitch with a supplier, which meant that the ground infrastructure became out of sync with the satellite. The ground infrastructure was operating perfectly, and the satellite infrastructure was operating perfectly, but the match between the two was off due to a date error. This was simply a software supplier who had forgotten we had a leap year last year, not a very brilliant thing to do, but we did experience an outage of around at least 24 hours while we got that reset and got the two dates back in sync. We estimate penalties and costs being around EUR1 million for this. And of course, we have a bit of a heated discussion with our software supplier on this point. It doesn't seem to be rocket science to know that last year was a leap year, but it seems to be that way.

Question: Ben Rickett - New Street Research LLP - Analyst : Firstly, just a follow-up question. You mentioned you were hoping to use ECA financing. Could you talk a bit about how much of the EUR2 billion to EUR2.2 billion of Gen 1 continuity CapEx you would hope to finance with ECA? I think this time last year, you were talking about two-thirds to four-fifths. So is that still the right sort of range? Eva Berneke - Eutelsat Communications SA - Chief Executive Officer, Executive Director, Member of the Executive Committee I think pretty much, yes.

Question: Ben Rickett - New Street Research LLP - Analyst : And if I could have one final question. It was just on the OneWeb trajectory. So it looks like you did OneWeb revenue of about EUR40 million in H1. You're saying the OneWeb backlog is still at around EUR1 billion. I'm just wondering, what gives you confidence that you will see OneWeb revenue ramping up towards the EUR6.5 billion that you mentioned? Eva Berneke - Eutelsat Communications SA - Chief Executive Officer, Executive Director, Member of the Executive Committee No, the EUR6.5 billion is IRIS2. I think you're talking about the IRIS2 billion, right? The EUR6.5 billion revenues are over the concession period out of the 1.5 terabits of capacity that's in IRIS2. As you know, that will be a subpart of our LEO constellation. That will be additional capacity to Eutelsat. So that's where the EUR6.5 billion comes in. LEO revenues are ramping up well. We don't split our connectivity revenues into LEO and GEO, but I don't fully recognize numbers where the LEO revenues are ramping up nicely. That is part of how we can also confirm our full-year guidance.

Question: Sami Kassab - BNP Paribas Exane - Analyst : I have a few questions, please. The first one, you talked about the several hundred millions of take-or-pay commitments from the EU on IRIS2. Is that on the Eutelsat part or on the whole program? And can you be more specific on the compensation mechanisms that should ensure minimum returns on the project and possibly share what the minimum guaranteed rate of return is on your EUR2 billion investment? Secondly, you have suggested that GEO connectivity trends are perhaps a bit weaker than expected. Yet in the press release, you suggest that the cessation of revenue recognition on Konnect VHTS is said to be temporary. When would you resume recognizing revenues? And why is it temporary? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 14, 2025 / 8:00AM, ETL.PA - Half Year 2025 Eutelsat Communications SA Earnings Call Eva Berneke - Eutelsat Communications SA - Chief Executive Officer, Executive Director, Member of the Executive Committee So let me start with the commitments of IRIS2. There are some take-or-pay plans for especially HardGov and SoftGov capacity for EU. That is not yet distributed, partly because we are talking about capacity that's going to be needed beyond, let's say, from '31 and on. So it's a bit early, and it will be a mix of kind of commercial and of course, the KML HardGov competence. So that's a total for the entire consortium. And of course, it can be -- if it's LEO, it's more likely it will -- that's where SES has its main interest. If it's LEO, it's where we have the main interest, but it is not finalized yet. That is part of the discussion. I think the other one was how the compensation was going to run or how the protection was going to be for the internal rate of return. And I think you know the mechanism of this first on the viewpoint, which is in about a year's time, which is a key element of having a confirmation of both timeline, cost, and quality. And we have an exit option if we don't, at that time, see a supply chain that can meet those obligations. The same thing, by the way, of IRIS2. So right now, we're in the process of confirming the supplier setup, which is probably what you'll hear from a lot of the Airbuses, OHBs, and others that they are in competition to enable us to ensure that we can build this constellation on time and within the EUR10.6 billion mark. So on the Konnect VHTS, we had initiated a discussion with TIM. TIM is one of our customers on Eutelsat Konnect and Eutelsat Konnect VHTS. TIM has not started migrating customers from Konnect to Konnect VHTS as was the original agreement and is debating whether they have an interest in that. And that's why we have stopped recognizing revenue with TIM. We have a multiyear take-or-pay with them. So we are right now in discussions with them on how to bring that into the future.

Question: Sami Kassab - BNP Paribas Exane - Analyst : And that's the minimum that's in line with 10% or that's the expected one? Eva Berneke - Eutelsat Communications SA - Chief Executive Officer, Executive Director, Member of the Executive Committee No, that's a minimum one. That's the one we expect to at least have.

Question: Aleksander Peterc - Bernstein Autonomous LLP - Analyst : I just have a little follow-up on CapEx first. So the EUR200 million shift of CapEx out of this year, is that going into later years? Or did you just reduce the entire approach and reduce the amount to spend here? And then when you talk about increased vigilance on GEO CapEx, is this a warning that you may have to drastically reduce GEO spending going forward given the disruption in the market from LEO? Is that what's going on? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 14, 2025 / 8:00AM, ETL.PA - Half Year 2025 Eutelsat Communications SA Earnings Call And then I have a follow-up. Eva Berneke - Eutelsat Communications SA - Chief Executive Officer, Executive Director, Member of the Executive Committee I think on the CapEx, we see a lower CapEx this year. We don't necessarily guide multiyear CapEx on it. I think there is some switch, which is simply the payment schedules and some of the ground infrastructure rollout that we will have in the second half of the year as well. But there is also a real reduction in it. And I think on GEO CapEx, what you'll see is that we will be looking at many types of partnerships. You saw the partnership we have with Thaicom as an example in a way of launching connectivity capacity in partnership, in this case with Thaicom, where we share a satellite rather than launch one each. And I think those are the type of partnerships, which both enable us to lower our own GEO capital or simply share the risk with other players. So those could be types of ways of being vigilant on future GEO CapEx spend.

Question: Aleksander Peterc - Bernstein Autonomous LLP - Analyst : And then my last question would be on the opportunity for LEO connectivity in mobility aero markets in IFC. I've seen Starlink taking sizable deals there, not least Air France-KLM, Qatar, and United. So my question is, do you have a roadmap for OneWeb serving these markets? Do you have any wins in this area? What's the timeline for developing this vertical? Eva Berneke - Eutelsat Communications SA - Chief Executive Officer, Executive Director, Member of the Executive Committee Yes. Thank you for the question because we actually do. It's been one of our core segments for a long time. We have a backlog of around 1,000 aircraft that are scheduled for installation. You've probably seen, I think we put that out on LinkedIn, some of the very positive early installations with Air Canada, but we also have American Airlines, Alaska, and Japan. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 14, 2025 / 8:00AM, ETL.PA - Half Year 2025 Eutelsat Communications SA Earnings Call It is not us direct. We, as you know, are working with distributors. We have a B2B approach. So you'll see that through Intelsat, Panasonic, even Viasat are using our LEO capacity for their aero services. So we are working with all of them and we have now Gogo business jets for smaller jets is also one of them who started to fly with our capacity. So we have a very strong backlog actually in aero for our LEO services. And then for Europe, we'll be able to put some Konnect VHTS on top of that and that will be even stronger. So aviation has been a very strong backlog element for us. Why it's taking a bit longer for it to start to actually generate revenue has to do with the different approvals of the FFA for terminals and of course, the test flights and then, of course, just installation on the fleet. But as I say, we have more than 1,000 aircraft in the backlog and Starlink is more recent into the market. Again, not a surprise that Starlink will start being interested in the B2C market, which has typically been three-quarters of the satellite market. And also in aero, and you saw especially the United deal where they, I think, are also going to install themselves, and then with Air France, which I believe is more that they are bringing Starlink into the mix, but not a full replacement. But I would expect to see many aircraft carriers and distributors would want to take in the different types of capacity, just like we are seeing in the maritime market that a lot of our distributors have both OneWeb and Starlink capacity and mixing the two.

Question: Aleksander Peterc - Bernstein Autonomous LLP - Analyst : Yes. Just to formula then. So looking at mobility, it fell well short of expectations in the reported quarter. So my question is, at what point will your strong backlog in LEO connectivity for Aero start to transpire in the mobility top line? Eva Berneke - Eutelsat Communications SA - Chief Executive Officer, Executive Director, Member of the Executive Committee So Aero we'll start seeing some of it in the next financial year, start to ramp up in the next financial year, some from the summer. I mean it's going to be very small over the summer and then it's going to start ramping up with the installation on the fleet over the next financial year.

Question: Stefan Diehl - ODDO BHF Trust GmbH - Analyst : I've got two, if that's possible. The first one is related to CapEx. Would you be able to give us an idea of how big is going to be your GEO fleet, let's say, I don't know, but let's say, at the end of this decade versus today? I'm just trying to understand to what extent you are redimensioning the GEO fleet. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 14, 2025 / 8:00AM, ETL.PA - Half Year 2025 Eutelsat Communications SA Earnings Call My second question is regarding IRIS2 again and just a follow-up. Could you give us more color on how the revenue calculations have been made? I guess what I'm trying to understand is how much extra EU state spending you're expecting versus what the states are actually spending today. Eva Berneke - Eutelsat Communications SA - Chief Executive Officer, Executive Director, Member of the Executive Committee Those are big questions. What I can tell you by 2030, we're probably still going to have around 35 satellites flying because we are talking much longer investments. I think your question, and I'll pass on the actual CapEx to Christophe is that what we are and that's just the rhythm of GEO satellites is that within the next year, we're going to have to start thinking about the satellites that will go into service by 2030, 2031. So that's just the rhythm of how long it takes to develop, launch, bring into orbit, test into orbit, and then actually start migrating customers on it. So we're on some very long things. But of course, and I think that's what we're looking at closely with Christophe on is that let's not spend on something that's going to go into service in early '29 but more likely '30 and '31, let's make sure that we don't overspend because they are going to be in service for 15 to 20 years after that. Christophe, do you want to put a word or two on GEO CapEx and how we think about it?

Question: Sami Kassab - BNP Paribas Exane - Analyst : I have a question on India. Given that one of your largest shareholders is a large Indian telco, given that India is a large, perhaps attractive market, can you please elaborate and tell us where you stand with market access rights into India and perhaps the business plan for India and how much revenues might India contribute to by the end of this decade? Eva Berneke - Eutelsat Communications SA - Chief Executive Officer, Executive Director, Member of the Executive Committee I don't know where India is going to be by the end of this decade, but it is clearly one of our core markets. We right now have some testing ongoing for specific use cases and they've opened up for actually allowing for kind of governmental and remote connectivity use cases in India. So we're the only one testing there. As you know, neither Starlink nor us have actually full market access rights in India yet. That's part of a geopolitical trend we see in quite a lot of places where governments are spending a lot of time studying what LEO connectivity will and which conditions they want to give market access. And so India, we expect to open up, especially for remote and government uses, and we are already testing. We've had a couple of quite successful tests with the Indian military. And of course, we are helped by one of our large shareholders and collaboration with Airtel on this. So partly Telecom and Airtel are close collaboration with them. And we have actually a significant take-or-pay on India already, which will kick in at the time where we actually gain market access to India. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 14, 2025 / 8:00AM, ETL.PA - Half Year 2025 Eutelsat Communications SA Earnings Call So we have a backlog sitting in India, which is ready to go live as soon as we get market access. We have the gateways in India up and running. So it's simply a question of regulatory approval of that market. So we'll likely get it at the same time as Starlink is my best guess, but it's been quite a long administrative process with the Indian regulator.