- Business Wire
SES S.A. announced financial results for the year and three months ended 31 December 2017.
This press release features multimedia. View the full release here: http://www.businesswire.com/news/home/20180222006522/en/
Full Year and Fourth Quarter 2017 Results (Photo: Business Wire)
Key financial highlights
- Reported revenue EUR 2,035.0 million, down 1.6% (-5.2% like-for-like(1)); SES Video -3.6%(1) and SES Networks -1.9%(1)
- EBITDA margin 65.1% (2016: 70.2% as reported and 66.7% like-for-like(1))
- Net profit of EUR 596.1 million (2016: EUR 962.7 million including EUR 495.2 million gain related to O3b consolidation)
- Board is proposing 2017 dividend per A share of EUR 0.80 (2016: EUR 1.34)
| Change (%) | Change (%) | |||||||||||||||
| EUR million | FY 2017 | FY 2016 | Reported | Like-for-like(1) | Q4 2017 | Q4 2016 | Reported | Like-for-like(1) | ||||||||
| Revenue | 2,035.0 | 2,068.8 | -1.6% | -5.2% | 507.8 | 578.7 | -12.2% | -8.7% | ||||||||
| EBITDA | 1,324.2 | 1,451.5 | -8.8% | -7.6% | 329.6 | 390.6 | -15.6% | -12.2% | ||||||||
| EBITDA margin | 65.1% | 66.7%(1) | 64.9% | 67.6%(1) | ||||||||||||
| Operating profit(2) | 610.6 | 820.3 | -25.6% | -14.4% | 162.2 | 209.9 | -22.8% | -20.2% | ||||||||
| Deemed gain on disposal of equity interest | -- | 495.2 | n/m | n/a | -- | -- | -- | -- | ||||||||
| Net profit attributable to SES shareholders | 596.1 | 962.7 | -38.1% | n/a | 201.6 | 138.6 | +45.4% | n/a | ||||||||
| Earnings per share | EUR 1.21 | EUR 2.18 | -44.5% | n/a | EUR 0.41 | EUR 0.27 | +51.9% | n/a | ||||||||
| Dividend per A share | EUR 0.80 | EUR 1.34 | -40.3% | n/a | n/a | n/a | n/a | n/a | ||||||||
1) Comparative figures are restated at constant FX to neutralise currency variations and assuming (on a pro forma basis) that RR Media and O3b had been consolidated from 1 January 2016. FY 2016 EBITDA margin as reported was 70.2%
2) Before deemed gain on disposal of equity interest (relating to consolidation of O3b) of EUR 495.2 million in 2016
Financial outlook
| FY 2017 as reported | FY 2017 | FY 2018 | FY 2020 | |||||
| Average EUR/USD FX rate | 1.1249 | 1.15 | 1.15 | 1.15 | ||||
| SES Video revenue | EUR 1,383.0 million | EUR 1,373.7 million | EUR 1,300 - 1,320 million | Over EUR 1,350 million | ||||
| SES Networks revenue | EUR 646.1 million | EUR 632.0 million | EUR 660 - 690 million | Over EUR 875 million | ||||
| Group EBITDA margin | 65.1% | 65.1% | 64.0% to 64.5% | Over 65.0% |
Financial outlook for FY 2018 and FY 2020 assumes a EUR/USD exchange rate of 1.15, nominal launch schedule and satellite health status and includes the impact of IFRS accounting changes
Karim Michel Sabbagh, President and CEO, commented: “2017 has been an important year of transformation for SES. We have established two market-focused business units, SES Video and SES Networks, and are now well positioned to deliver growth in the future. Business performance was below our expectations as the market remained challenging throughout 2017, compounded by some fleet health issues.”
“We are starting to see the benefits of our investment programme with three new satellites successfully launched in 2017 and another two already launched in 2018. These, along with other planned launches for 2018 and 2019, will bring much needed capacity and customer-specific capabilities to our fleet, particularly in the rapidly growing aeronautical market, that will underpin our future growth. As part of our strategic transformation, we have launched our ‘Fit-for-Growth’ programme that will optimise and focus the allocation of our world-class resources and increase internal efficiencies. As we continue to adapt to the new operating and financial model, and invest in our future growth, we have decided to rebase our dividend, allowing for growth in future years as our business develops.”
“SES Video delivers more channels to more viewers from more premium neighbourhoods than any other operator and, with a backlog of EUR 5.3 billion, our video business is large, profitable and resilient. SES Networks is the only business capable of combining Geostationary, Medium Earth Orbit and innovative ground solutions into compelling solutions for our data-centric customers. We are committed to reinvesting cash generated by our businesses to generate long-term growth, principally focused on SES Networks. Whilst 2018 will still be a year of completing our business transformation, SES expects to deliver growth at attractive margins, as evidenced by the 2020 guidance given today.”
“As has already been announced, Padraig McCarthy and I will be stepping down as CFO and CEO of SES on 5 April 2018. Steve Collar and Andrew Browne (as President & CEO and CFO respectively) have been appointed as our successors and we wish them every success in taking SES forward.”
Key business highlights
SES Video revenue of EUR 1,383.0 million in FY 2017 was down 3.6% (like-for-like), including Q4 2017 revenue of EUR 351.5 million (-3.0% like-for-like). While Video remains a competitive market environment, the business also had an unusually high impact from satellite health and launch delays, as well as some specific short-term factors at MX1 relating to the non-renewal of certain legacy contracts. In 2018, the implementation of IFRS 15 is expected to lead to a revenue reduction of around EUR 15-20 million related to HD+, with no cash impact.
SES Networks revenue was down 1.9% (like-for-like) at EUR 646.1 million, including EUR 156.1 million of revenue in Q4 2017 (-12.9% like-for-like). The Q4 2017 year-on-year (YOY) decline was primarily related to a significant transponder sale in Mobility in Q4 2016. Mobility was flat year-on-year excluding this transponder sale, with Fixed Data showing a decline of 8.4% and Government up 5.5%. SES Networks grew by 7.4% from Q3 2017 to Q4 2017 at constant FX.
SES Networks is building, resourcing and implementing unique and differentiated data solutions services which are gaining traction with customers around the world. In Q4 2017, SES Networks experienced its strongest quarter of sales, more than doubling its annualised sales volume from Q2 2017. A number of important customer services were also commissioned during Q4, generating new revenue early in 2018.
Overall, SES’s backlog of committed contracts stands at EUR 7.5 billion (2016: EUR 8.1 billion as reported and EUR 7.6 billion at constant FX), flat year-on-year demonstrating that the business is successfully replacing revenue that was delivered over the course of the year. More than 80% of expected 2018 revenue is already committed.
SES’s future growth is enabled by the successful launches of SES-10, SES-11 and SES-15 in 2017, and now SES-14 and SES-16 already in 2018. In the remainder of this year, SES expects to launch SES-12 and an additional four satellites for the O3b constellation which are specifically designed to maximise the MEO advantages for the target customers.
As part of its business transformation, SES is increasingly focused on managing costs to optimise efficiency and growth. In 2017, SES reduced operating expenses by EUR 4.0 million to EUR 710.8 million on a like-for-like basis. This helped support the EBITDA margin, which was 64.9% in Q4 2017 and 65.1% in full year 2017. SES is intensifying its focus on operational efficiency with the roll-out of a company-wide ‘Fit-for-Growth’ programme and anticipates taking a EUR 10-12 million restructuring provision in Q1 2018 to fund planned measures.
In Q4 2017, the tax line included the recognition of several non-recurring gains, the main one being the positive impact of changes in U.S. tax legislation which led to the recognition of a one-off accounting gain of EUR 94 million. Excluding this item and other one-off elements during 2017, the group’s effective tax rate was 20.4% for FY 2017 (2016: 17.7% excluding the gain on deemed disposal of equity interest).
A higher cash conversion ratio of 94.5% and EUR 129.1 million reduction in investing activities (of EUR 490.4 million) led to Free Cash Flow before financing activities and acquisitions increasing by 16.2% (YOY) to EUR 760.8 million. Net debt to EBITDA ratio at year end 2017 was 3.27 times, including 50% of SES’s hybrid bonds, within SES’s threshold level of 3.3 times.
Looking ahead, as the businesses continue to scale up their capabilities and identify additional growth opportunities, the revenue mix and margin structure will evolve. SES has updated the guidance and provided enhanced disclosures to improve understanding of the current performance and future prospects. The outlook combines caution for 2018 as SES completes the business transformation with strengthened confidence for meaningful growth in the following two years and beyond. Given the investments that have been made, the future capital expenditure commitments, and the evolving nature of the business model, SES intends to strengthen the balance sheet.
Accordingly, the Board of Directors has proposed to rebase the dividend to a lower level of EUR 0.80 per A class share for 2017, a reduction of 40% from 2016. This rebasing is appropriate for SES and will allow a strengthening of the balance sheet whilst supporting growth opportunities and enabling a progressive dividend in the future.
OPERATIONAL REVIEW
| Change (%) | Change (%) | |||||||||||||||
| EUR million | FY 2017 | FY 2016 | Reported | Like-for-like(1) | Q4 2017 | Q4 2016 | Reported | Like-for-like(1) | ||||||||
| SES Video | 1,383.0 | 1,391.6(3) | -0.6% | -3.6% | 351.5 | 371.6 | -5.4% | -3.0% | ||||||||
| 1,373.2 | 1,366.5 | +0.5% | -2.4% | 348.6 | 370.1 | -5.8% | -3.4% | ||||||||
| 9.8 | 25.1 | n/m | n/m | 2.9 | 1.5 | n/m | n/m | ||||||||
| SES Networks | 646.1 | 627.3 | +3.0% | -1.9% | 156.1 | 192.3 | -18.8% | -12.9% | ||||||||
| 606.6 | 588.6 | +3.1% | -2.6% | 154.7 | 166.5 | -7.1% | -0.8% | ||||||||
| 39.5 | 38.7 | n/m | n/m | 1.4 | 25.8 | n/m | n/m | ||||||||
| Sub-total | 2,029.1 | 2,018.9 | +0.5% | -3.1% | 507.6 | 563.9 | -10.0% | -6.3% | ||||||||
| 1,979.8 | 1,955.1 | +1.3% | -2.4% | 503.3 | 536.6 | -6.2% | -2.6% | ||||||||
| 49.3 | 63.8 | n/m | n/m | 4.3 | 27.3 | n/m | n/m | ||||||||
| Other(2) | 5.9 | 49.9(3) | n/m | n/m | 0.2 | 14.8 | n/m | n/m | ||||||||
| Group Total | 2,035.0 | 2,068.8 | -1.6% | -5.2% | 507.8 | 578.7 | -12.2% | -8.7% | ||||||||
1) At constant FX and assuming (on a pro forma basis) that RR Media and O3b had been consolidated from 1 January 2016
2) Other includes revenue not directly applicable to a particular vertical
3) During 2017, EUR 7.2 million of 2016 reported revenue was reclassified from Video to Other
Reported revenue, which included the full year of 2017 contribution from RR Media (acquired in July 2016) and O3b (consolidated in August 2016), was 1.6% lower than the prior year.
On a like-for-like basis (at constant FX and assuming RR Media and O3b were consolidated from 1 January 2016), group revenue decreased by EUR 112.6 million (or 5.2%) mainly due to higher periodic and “Other” revenue in 2016, the impact from the loss of AMC-9 in June 2017 and lower revenue in MX1 as a number of legacy services were not renewed.
“Underlying” revenue represents the core business of capacity sales, as well as associated services and equipment. This is impacted by changes in launch schedule and satellite health status.
“Periodic” revenue separates revenues that are not directly related to or would distort the underlying business trends on a quarterly basis. This includes: the outright sale of capacity; accelerated revenue from hosted payloads during the course of construction; termination fees; insurance proceeds; certain interim satellite missions and other such items when material.
At 31 December 2017, SES’s fully protected contract backlog was EUR 7.5 billion (31 December 2016: EUR 8.1 billion). Excluding the impact of the change in the EUR/USD FX rate, the contract backlog was in line with the prior year (of EUR 7.6 billion) as new long-term contracts replaced the roll-off from revenue recognised in the period.
This was supported by a strong increase in commercial activity across SES Networks, where the annualised value of new business wins and customer renewals signed in Q4 2017 was double the amount in any of the preceding quarters.
SES Video: 68% of group revenue (2016: 67%)
- Reported revenue down -0.6% to EUR 1,383.0 million (-3.6% like-for-like)
- Underlying revenue -2.4% (like-for-like) including the impact of satellite health and MX1 non-renewals
- 2% growth (YOY) in total TV channels, driven by expansion of HD/UHD and International market growth
- Contract backlog of EUR 5.3 billion (2016: EUR 5.9 billion as reported and EUR 5.6 billion at constant FX)
- Over 85% of 2018 expected revenue already committed
Going forward, SES Video’s revenue will be disclosed for two principal activities – Video Distribution and Video Services. Video Distribution refers to revenue generated from satellite capacity for the distribution of video content via Direct-to-Home (DTH), Direct-to-Cable (DTC) and Internet Protocol TV (IPTV) platforms. Video Services represents the combined contribution of MX1, including revenue from “pull through” capacity directly generated by the business, and HD+ platform revenue.
| Change (%) | Change (%) | |||||||||||||||
| EUR million | FY 2017 | FY 2016 | Reported | Like-for-like(1) | Q4 2017 | Q4 2016 | Reported | Like-for-like(1) | ||||||||
| Video Distribution(2) | 1,053.8 | 1,107.8 | -4.9% | -4.2% | 261.9 | 277.6 | -5.7% | -3.1% | ||||||||
| 1,044.0 | 1,088.7 | -4.1% | -3.1% | 259.0 | 276.1 | -6.2% | -3.6% | ||||||||
| 9.8 | 19.1 | n/m | n/m | 2.9 | 1.5 | n/m | n/m | ||||||||
| Video Services(3) | 329.2 | 283.8 | +16.0% | -1.9% | 89.6 | 94.0 | -4.6% | -2.6% | ||||||||
| 329.2 | 277.8 | +18.5% | -0.1% | 89.6 | 94.0 | -4.6% | -2.6% | ||||||||
| -- | 6.0 | n/m | n/m | -- | -- | n/m | n/m | ||||||||
| SES Video | 1,383.0 | 1,391.6(4) | -0.6% | -3.6% | 351.5 | 371.6 | -5.4% | -3.0% | ||||||||
| - Underlying | 1,373.2 | 1,366.5 | +0.5% | -2.4% | 348.6 | 370.1 | -5.8% | -3.4% | ||||||||
| - Periodic | 9.8 | 25.1 | n/m | n/m | 2.9 | 1.5 | n/m | n/m | ||||||||
1) At constant FX and assuming (on a pro forma basis) that RR Media had been consolidated from 1 January 2016
2) Satellite capacity revenue, excluding “pull through” capacity provided to support MX1
3) Comprising MX1, including associated satellite capacity, and HD+ subscription revenue
4) During 2017, EUR 7.2 million of 2016 reported revenue was reclassified from Video to Other
Full Year 2017 Highlights: SES Video
The 3.6% like-for-like revenue reduction is predominantly related to higher periodic revenue in the prior year, the impact of changes in satellite health and lower revenue in MX1 as a number of legacy services were not renewed.
Fourth Quarter 2017 Highlights and Business Trends: SES Video
SES Video’s revenue was 3.0% lower than Q4 2016 which included the impact of the loss of AMC-9 and lower revenue in MX1 following the non-renewal of a number of legacy services in Q3 2017. The underlying revenue, including satellite health, was down 3.4%.
Video Distribution (Q4 2017)
Overall, Video Distribution revenue was 3.1% (like-for-like) lower in Q4 2017 compared with the prior year period. The decline was driven by lower revenue in North America and International markets, which were also impacted by the loss of AMC-9. The European business returned to stability in Q4 2017 supported by new capacity contracted for UHD.
At 31 December 2017, total TV channels had grown by 2% year-on-year to 7,709 TV channels. Continued expansion of High Definition (HD) TV led to a 4% year-on-year growth to 2,602 HD channels. HDTV channels represented 33.8% of total TV channels (Q4 2016: 33.1%), while the proportion of total TV channels broadcast in MPEG-4 increased from 61.4% at Q4 2016 to 65.0% as at Q4 2017. The number of commercial Ultra HD (UHD) TV channels increased from 21 UHD TV channels to 28 UHD TV channels including new channels announced by QVC and Canal+ during Q4 2017.
Revenue in Q4 2017 was stable year-on-year in Europe, where QVC contracted additional capacity to support the launch of a new UHD TV channel in Germany. The European business also benefited from additional long-term capacity renewals including ProSiebenSat.1 and ARD-ZDF in Germany, Orange (through SES’s partnership with Globecast) in Romania and All Media Baltics over the Nordic and Baltic markets. Across Europe, total TV channels were stable compared with Q4 2016 at nearly 2,700 TV channels, as a net reduction in the number of Standard Definition (SD) channels was offset by additional HD and UHD channels.
In North America, there was a small decline in revenue in Q4 2017, compared with Q4 2016, due to modest volume reductions, as well as lower occasional use revenue following the loss of AMC-9. At Q4 2017, the SES fleet was broadcasting more than 2,000 total TV channels in North America which represented a small decrease year-on-year reflecting a lower number of SD channels, partly offset by growth in the number of HD channels. SES’s UHD platform in North America is continuing to build market traction towards wider commercial adoption, with more than 30 U.S. cable and IPTV operators testing UHD using SES Video’s 4K content delivery platform.
Underlying revenue across the International markets was lower (year-on-year) in Q4 2017 due to the combination of lower volume following the loss of AMC-9 and a gradual ramp-up of new capacity including SES-9 and SES-10 in 2017 reflecting the dynamics of these markets. The number of total TV channels (including HD and UHD) increased by 8% year-on-year to nearly 3,000 TV channels as new DTH platforms, notably in Africa and the Middle East, were rolled out using previously contracted capacity.
Video Services (Q4 2017)
Video Services decreased 2.6% (like-for-like) in Q4 2017, compared to the prior year period, as non-renewals of legacy services in MX1 more than offset revenue growth in the HD+ platform in Germany.
The impact of the MX1 non-renewals contributed to a net reduction of EUR 7.0 million for Q4 2017 compared with Q4 2016 for the business. This represented a slight improvement on the EUR 7.5 million (year-on-year) net reduction reported in Q3 2017 as new business wins - such as eoTV and fuboTV - for linear and over-the-top distribution services will support the on-going stabilisation of MX1 revenue under its new CEO. Compared with Q3 2017, MX1 benefited from revenue seasonality, notably for distribution of premium sports and entertainment content to customers’ end-viewers.
This offset year-on-year growth for HD+ in Q4 2017 reflecting the combination of the increased annual subscription fee (from EUR 60 to EUR 70) and the introduction of a supplementary premium Eurosport package. At Q4 2017, the total number of paying subscribers was 2.1 million (Q4 2016: 2.1 million). Adoption of IFRS 15 accounting changes in 2018 is expected to lead to a year-on-year revenue reduction of EUR 15-20 million in HD+, although there is no cash impact. 2017 revenue will not be restated.
SES Networks: 32% of group revenue (2016: 30%)
- Reported revenue up 3.0% to EUR 646.1 million (-1.9% like-for-like)
- Underlying revenue down 2.6% (like-for-like) including the impact of changes in satellite health
- Contract backlog of EUR 2.3 billion (2016: EUR 2.2 billion as reported and EUR 2.0 billion at constant FX)
- Over 75% of 2018 expected revenue already committed with annualised value of contracts signed in Q4 2017 doubled
- Investing in new capabilities, such as O3b mPOWER, to enhance differentiation and expand addressable market
| Change (%) | Change (%) | |||||||||||||||
| EUR million | FY 2017 | FY 2016 | Reported | Like-for-like(1) | Q4 2017 | Q4 2016 | Reported | Like-for-like(1) | ||||||||
| Fixed Data | 254.8 | 251.8 | +1.2% | -6.0% | 60.3 | 70.3 | -14.3% | -8.4% | ||||||||
| 245.8 | 248.7 | -1.2% | -8.3% | 60.3 | 70.3 | -14.3% | -8.4% | ||||||||
| 9.0 | 3.1 | n/m | n/m | -- | -- | n/m | n/m | ||||||||
| Mobility | 145.4 | 133.7 | +8.7% | -0.1% | 31.0 | 56.9 | -45.4% | -40.4% | ||||||||
| 127.8 | 108.2 | +18.2% | +4.4% | 31.0 | 33.5 | -7.2% | +0.0% | ||||||||
| 17.6 | 25.5 | n/m | n/m | -- | 23.4 | n/m | n/m | ||||||||
| Government | 245.9 | 241.8 | +1.7% | +1.6% | 64.8 | 65.2 | -0.6% | +5.5% | ||||||||
| 233.0 | 231.7 | +0.5% | +0.4% | 63.4 | 62.8 | +1.0% | +7.1% | ||||||||
| 12.9 | 10.1 | n/m | n/m | 1.4 | 2.4 | n/m | n/m | ||||||||
| SES Networks | 646.1 | 627.3 |
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