- Business Wire
SES S.A. announced solid financial results for the nine and three months ended 30 September 2018 with group revenue growing, fuelled by strengthening double-digit growth at SES Networks.
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SES fleet includes over 50 satellites in Geostationary Orbit (GEO) and 16 in Medium Earth Orbit (MEO). (Photo: Business Wire)
Key financial highlights
- Reported revenue of EUR 1,469.4 million (YTD 2017: EUR 1,527.2 million), up 0.4% at constant FX(1)
- Underlying revenue(2) of EUR 1,445.6 million; up 2.1%(1) (SES Video: -2.8%(1,2) and SES Networks +13.6%(1,2))
- YTD 2018 EBITDA margin of 63.1% (YTD 2017: 65.1%); 63.8% excluding restructuring charge of EUR 9.7 million
- Net profit attributable to SES shareholders of EUR 303.7 million (YTD 2017: EUR 394.5 million)
- Free Cash Flow before financing activities up 29.2% to EUR 593.0 million
- On track to deliver FY 2018 and FY 2020 financial outlook
| Change (%) | |||||||||
| EUR million | YTD 2018 | YTD 2017 | Reported | Constant FX(1) | |||||
| Revenue | 1,469.4 | 1,527.2 | -3.8% | +0.4% | |||||
| EBITDA | 927.7 | 994.6 | -6.7% | -2.9% | |||||
| Operating profit | 404.3 | 448.4 | -9.8% | -7.2% | |||||
| Net profit attributable to SES shareholders | 303.7 | 394.5 | -23.0% | n/a | |||||
| Earnings per share | EUR 0.59 | EUR 0.77 | -23.4% | n/a | |||||
1) Comparative figures are restated at constant FX to neutralise currency variations
2) Excluding periodic and other revenue (disclosed separately) that are not directly related to or would distort the underlying business trends
Steve Collar, President and CEO, commented: "Our focus on execution continues to generate strong financial performance, delivering growth in absolute and underlying revenue, and we remain on track to deliver on our year-end financial outlook.
SES Networks has again demonstrated that it is the growth engine for our business with underlying growth of 14% year-to-date and almost 20% in Q3 2018. For the first time in a number of years, all three of the SES Networks' business verticals delivered growth this quarter, including a positive contribution from Fixed Data. To reinforce the positive contribution from Fixed Data, we have delivered a major turn-key project in Papau New Guinea in record time in the quarter, underscoring our capabilities as an end-to-end managed service provider, while also concluding an important partnership agreement with IBM, strengthening my belief that Global Cloud Connectivity, and integration with Cloud Service Providers, will be an important driver of revenue and growth for SES in the future.
SES Video has signed important renewals and new business this quarter with now 96% of 2018's expected total revenue secured, including an important renewal with Channel 4 in the U.K. Video Services contributed positively in Q3 with growing traction for our MX1 360 platform. International video distribution remains challenged with some platforms struggling to achieve market traction and strong competition for all new platforms. We remain focused on growth opportunities while reinforcing our core neighbourhoods that are among the best and most penetrated DTH neighbourhoods in the world.
Finally, we continue to make strong progress with our C-band initiative in the U.S., aligning our proposal with the leading continental U.S. satellite services operators, founding the C-band Alliance (CBA) and hiring experienced U.S. executives to run the consortium. In comments to the FCC's NPRM due next week, the CBA will confirm on behalf of its members that up to 200 MHz of mid-band spectrum could be cleared to support 5G wireless deployment nationwide in the U.S. while protecting the important broadcast and other communities that we serve today. I am increasingly persuaded that our market-based proposal is the best way to facilitate a leading position for the U.S. in 5G and is the only way to repurpose spectrum in a timeframe consistent with the stated goals of the FCC."
Key business highlights
- Group revenue was EUR 1,469.4 million for YTD 2018 (+0.4% at constant FX compared with the prior period). Underlying revenue (excluding periodic and other) grew by 2.1% (year-on-year) at constant FX to EUR 1,445.6 million, including growth of 3.2% (year-on-year) in Q3 2018. Periodic and other revenue for YTD 2018 was EUR 23.8 million, including EUR 3.7 million in Q3 2018.
- SES Video YTD 2018 underlying revenue of EUR 967.5 million was 2.8% lower (year-on-year) at constant FX, as growth in video services partly offset lower video distribution revenue. Q3 2018 underlying revenue of EUR 317.5 million was 3.8% lower (year-on-year) at constant FX.
- In Q3 2018, SES Video continued to secure important renewals across core neighbourhoods (including Channel 4 and QVC), while also securing agreements with customers to expand TV channel offerings in Latin America (Kiwisat) and Nigeria (Africa.XP). MX1 is now partnering with Smart Mobile Labs to enhance the experience for spectators of live events, while also continuing to build market traction for the MX1 360 solution.
- SES Networks YTD 2018 underlying revenue grew by 13.6% (year-on-year) at constant FX to EUR 478.1 million. Mobility (+32.6%) and Government (+21.0%) continued to deliver strong growth, while Fixed Data (-3.3%) lower (year-on-year) was positive in Q3 (+1.7%). Q3 2018 underlying revenue grew by 19.5% (year-on-year) at constant FX to EUR 166.7 million with Government, Fixed Data and Mobility all contributing positively.
- SES Networks gained further commercial momentum in Q3 2018 with new agreements signed across all verticals including new fixed data business in Latin America (TV Isla), the Pacific (DataCo) and global cloud (IBM); new U.S. Government business supporting Air Combat Command; and incremental maritime services signed with Navarino and Marlink. This was complemented by expanded commitments in aeronautical, and the addition of new cruise clients.
- YTD 2018 EBITDA of 927.7 million represented an EBITDA margin of 63.1%, or 63.8% excluding a restructuring charge of EUR 9.7 million associated with the group's on-going optimisation programme.
- Net profit attributable to SES shareholders was EUR 303.7 million for YTD 2018, including the positive tax contribution relating to GovSat-1 and the O3b business that was recognised in the H1 2018 results.
- Net debt to EBITDA ratio (as per the rating agency methodology) was 3.43 times, compared with 3.53 times at Q2 2018 and 3.27 times at Q4 2017. The net debt to EBITDA ratio is expected to be below 3.30 times by the end of 2018.
- SES's fully protected contract backlog as at Q3 2018 was EUR 7.0 billion (at Q3 2017: EUR 7.6 billion at constant FX).
- 97% of 2018 expected group revenue is now contractually committed and the business remains on track to deliver 2018 group revenue within the top half of the outlook range (between EUR 1,990 million and EUR 2,035 million1, with SES Video at the lower end and SES Networks at the higher end of the range) and EBITDA of over EUR 1,270 million1 and grow group revenue and EBITDA by 2020 at constant FX.
- 2018 expected Capital Expenditure (CapEx) is reduced by EUR 80 million to EUR 380 million1, of which EUR 10 million has been moved to 2019 and EUR 70 million to 2020, with no change in the overall CapEx profile between 2018 and 2022.
1) Financial outlook assumes EUR/USD exchange rate of 1.15, nominal launch schedule and satellite health status
OPERATIONAL REVIEW
For the nine months ended 30 September 2018, underlying revenue of EUR 1,445.6 million was EUR 29.2 million (or 2.1%) higher at constant FX, compared with the prior period, fuelled by double-digit growth delivered by the expansion of SES Networks. Total group revenue included periodic and other revenue of EUR 23.8 million (2017: EUR 50.7 million).
Third quarter 2018 underlying revenue of EUR 484.2 million was EUR 14.8 million (or 3.2%) higher at constant FX than the prior period.
REVENUE BY BUSINESS UNIT
| Change (%) | |||||||||
| EUR million | YTD 2018 | YTD 2017 | Reported | Constant FX | |||||
| SES Video | 977.4 | 1,031.5 | -5.2% | -2.5% | |||||
| - Underlying | 967.5 | 1,024.6 | -5.6% | -2.8% | |||||
| - Periodic | 9.9 | 6.9 | n/m | n/m | |||||
| SES Networks | 491.0 | 490.0 | +0.2% | +7.7% | |||||
| - Underlying | 478.1 | 451.9 | +5.8% | +13.6% | |||||
| - Periodic | 12.9 | 38.1 | n/m | n/m | |||||
| Sub-total | 1,468.4 | 1,521.5 | -3.5% | +0.7% | |||||
| - Underlying | 1,445.6 | 1,476.5 | -2.1% | +2.1% | |||||
| - Periodic | 22.8 | 45.0 | n/m | n/m | |||||
| Other(1) | 1.0 | 5.7 | n/m | n/m | |||||
| Group Total | 1,469.4 | 1,527.2 | -3.8% | +0.4% | |||||
"Underlying" revenue represents the core business of capacity sales, as well as associated services and equipment. This revenue may be 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. Periodic revenue includes: the outright sale of transponders or transponder equivalents; accelerated revenue from hosted payloads during the course of construction; termination fees; insurance proceeds; certain interim satellite missions and other such items when material.
1) Other includes revenue not directly applicable to SES Video or SES Networks
SES Video: 67% of group revenue (YTD 2017: 68%)
SES VIDEO REVENUE BY VERTICAL
| Change (%) | |||||||||
| EUR million | YTD 2018 | YTD 2017 | Reported | Constant FX | |||||
| Video Distribution | 734.7 | 791.9 | -7.2% | -4.3% | |||||
| - Underlying | 724.8 | 785.0 | -7.7% | -4.7% | |||||
| - Periodic | 9.9 | 6.9 | n/m | n/m | |||||
| Video Services | 242.7 | 239.6 | +1.3% | +3.5% | |||||
| - Underlying | 242.7 | 239.6 | +1.3% | +3.5% | |||||
| - Periodic | -- | -- | n/m | n/m | |||||
| SES Video | 977.4 | 1,031.5 | -5.2% | -2.5% | |||||
| - Underlying | 967.5 | 1,024.6 | -5.6% | -2.8% | |||||
| - Periodic | 9.9 | 6.9 | n/m | n/m | |||||
SES Video's underlying revenue of EUR 967.5 million was EUR 27.9 million (or 2.8%) lower at constant FX than the prior period. Total revenue for SES Video included EUR 9.9 million of periodic revenue (YTD 2017: EUR 6.9 million).
Third quarter 2018 underlying revenue of EUR 317.5 million was EUR 12.4 million (or 3.8%) lower at constant FX than the prior period.
At Q3 2018, SES is now delivering 8,020 total TV channels to viewers around the world. This represented an increase of 4% (year-on-year) reflecting the introduction of new HD (up 7% year-on-year to 2,795 HD TV channels) and UHD (up 67% to 40 commercial UHD TV channels) offerings across all three of SES' major regions. At Q3 2018, 65.4% of total TV channels are now broadcast in MPEG-4 (Q3 2017: 63.5%).
Video Distribution
Underlying revenue for the first nine months of 2018 was 4.7% lower than YTD 2017.
The European business continued to benefit from important long-term renewals, notably in the U.K. and Germany. Q3 2018 was impacted by the expiration of certain capacity contracts signed on a short-term basis, contributing to overall revenue being slightly lower in the quarter. Appetite for UHD is continuing to grow and remains an important contributor to the future development of SES' largest and most valued video neighbourhoods.
North America decreased (year-on-year), as anticipated, due to lower volume resulting from the switch-off of SD TV channels which had already been replaced with HD TV channels, as well as on-going fleet optimisation initiatives.
Trading conditions in the International markets continue to be challenging with recently launched customer platforms struggling to build traction while competition to establish new platforms remains intense. The business continues to focus on building the commercial pipeline, notably for SES-9 and SES-10.
In September 2018, the Board of directors of YahLive (a partnership between SES and YahSat, in which SES has a 35% participation) decided to undertake a strategic review to consider options for the future development of the business which serves direct-to-home video neighbourhoods in the Middle East, as well as North Africa and Southwest Asia.
Third quarter 2018underlying revenue of EUR 237.8 million was 5.8% lower (constant FX) than the prior period.
Video Services
Underlying revenue was 3.5% higher for YTD 2018 compared with the prior period.
HD+ continued to benefit from the increase in the annual subscription fee (from EUR 60 per annum to EUR 70 per annum) that was introduced at the start of Q2 2017, contributing to growth (year-on-year) in underlying revenue.
This was complemented by stable (year-on-year) development of MX1's underlying revenue base, as new business wins secured throughout 2018 to provide value-added linear and OTT services offset the non-renewal of certain legacy contracts.
Third quarter 2018underlying revenue of EUR 79.7 million was 3.1% higher (constant FX).
SES Networks: 33% of group revenue (YTD 2017: 32%)
SES NETWORKS REVENUE BY VERTICAL
| Change (%) | |||||||||
| EUR million | YTD 2018 | YTD 2017 | Reported | Constant FX | |||||
| Government | 200.6 | 181.1 | +10.8% | +17.5% | |||||
| - Underlying | 192.8 | 169.6 | +13.7% | +21.0% | |||||
| - Periodic | 7.8 | 11.5 | n/m | n/m | |||||
| Fixed Data | 171.6 | 194.5 | -11.8% | -4.9% | |||||
| - Underlying | 166.5 | 185.5 | -10.2% | -3.3% | |||||
| - Periodic | 5.1 | 9.0 | n/m | n/m | |||||
| Mobility | 118.8 | 114.4 | +3.8% | +13.3% | |||||
| - Underlying | 118.8 | 96.8 | +22.7% | +32.6% | |||||
| - Periodic | -- | 17.6 | n/m | n/m | |||||
| SES Networks | 491.0 | 490.0 | +0.2% | +7.7% | |||||
| Underlying | 478.1 | 451.9 | +5.8% | +13.6% | |||||
| Periodic | 12.9 | 38.1 | n/m | n/m | |||||
Underlying revenue of EUR 478.1 million was EUR 57.1 million (or 13.6%) higher at constant FX, compared with YTD 2017, reflecting strong growth in Government and Mobility (notably aeronautical) throughout the first nine months of 2018, while Fixed Data also made a positive contribution to growth (year-on-year) in Q3 2018.
SES Networks' total YTD 2018 revenue included EUR 12.9 million of periodic revenue (YTD 2017: EUR 38.1 million, including the second of two up-front revenue contributions from the sale of transponders to Global Eagle Entertainment).
Third quarter 2018underlying revenue of EUR 166.7 million was 19.5% higher (constant FX) than the prior period, benefiting from the positive contribution of all three SES Networks verticals, including Fixed Data.
Government
Underlying revenue grew by 21.0% for YTD 2018, compared with YTD 2017, reflecting strong growth in both SES Networks' U.S. Government and Global Government businesses.
Significant incremental adoption of SES Networks' O3b-based services by the U.S. Department of Defense was the key driver of strong growth (year-on-year) in U.S. Government revenue. This was complemented by solid performance across the existing business which has secured almost all of its renewals thus far in 2018, as well as winning some important new business on the GEO fleet.
SES' Global Government business also delivered strong (year-on-year) performance, as the extension and expansion of service commitments, notably to support humanitarian and peacekeeping operations, was complemented by an incremental revenue contribution from GovSat-1 which began delivering services to government clients at the end of Q1 2018.
Third quarter 2018underlying revenue of EUR 69.6 million was 28.1% higher (constant FX) than the prior period.
Fixed Data
Underlying revenue for YTD 2018 was 3.3% (year-on-year) lower at constant FX, compared with YTD 2017.
Revenue in the Americas and Asia grew (year-on-year) benefiting from the deployment of managed service agreements supporting telecommunications companies (Telcos) and mobile network operators (MNOs) to extend their 3G and 4G network reach where these cannot be delivered terrestrially.
Fixed Data revenue in Europe, the Middle East and Africa decreased (year-on-year) reflecting the impact of lower wholesale capacity revenue which offset positive momentum generated by the expansion of O3b-based services.
Third quarter 2018underlying revenue of EUR 55.5 million was 1.7% higher (constant FX) than the prior period, driven by new revenue from new managed services deployed on behalf of Telcos, MNOs and cloud service providers. This outweighed the impact of lower (year-on-year) wholesale capacity revenue where pricing has stabilised in recent months, albeit significantly below historic levels.
Mobility
Underlying revenue grew by 32.6%, versus YTD 2017, as significant growth in aeronautical was complemented by additional new business wins in maritime.
Aeronautical has continued to deliver significant growth, notably in North America with the start of commercial services on SES-15 at the beginning of 2018, while SES Networks also signed important incremental agreements with Gogo and Global Eagle Entertainment in Q3 2018.
This growth was complemented by stable year-to-date development in maritime, as the impact of lower equipment revenues in H1 2018 (compared with the prior year) was offset by growth in recurring revenue delivered in Q3 2018, which benefited from expansion of contracts with existing and new cruise customers.
Third quarter 2018underlying revenue of EUR 41.6 million was 36.1% higher (constant FX) than the prior period.
Other Revenue
Other revenue includes transactions not directly applicable to SES Video or SES Networks and was EUR 1.0 million for YTD 2018 (YTD 2017: EUR 5.7 million). This included EUR 0.3 million of other revenue in Q3 2018 (Q3 2017: EUR 0.2 million).
Future satellite capacity and fleet update
COMMITTED LAUNCH SCHEDULE
| Satellite | Region | Application | Launch Date | ||||
| SES-12(1) | Asia-Pacific | Video, Fixed Data, Mobility | Launched (June 2018) | ||||
| SES-14(1) | Latin America | Video, Fixed Data, Mobility | Launched (January 2018) | ||||
| GovSat-1(2) | Europe/MENA | Government | Launched (January 2018) | ||||
| O3b (satellites 13-16) | Global | Fixed Data, Mobility, Government | Launched (March 2018) | ||||
| O3b (satellites 17-20) | Global | Fixed Data, Mobility, Government | H1 2019 | ||||
| SES-17 | Americas | Fixed Data, Mobility, Government | H1 2021 | ||||
| O3b mPOWER (satellites 1-7) | Global | Fixed Data, Mobility, Government | H1 2021 |
1) To be positioned using electric orbit raising (entry into service typically around six months after launch)
2) Procured by GovSat
All the scheduled 2018 launches were successfully completed during H1 2018, adding important future growth capabilities. Apart from SES-12 (which is expected to enter commercial service by the end of Q1 2019), these assets are already in commercial service and contributing to the business.
FINANCIAL REVIEW
Income Statement
REVENUE, OPERATING EXPENSES AND EBITDA
| EUR million | YTD 2018 | YTD 2017 | Change | Change (%) | |||||
| Revenue | 1,469.4 | 1,527.2 | -57.8 | -3.8% | |||||
| Revenue (constant FX) | 1,469.4 | 1,463.2 | +6.2 | +0.4% | |||||
| Operating expenses | (541.7) | (532.6) | -9.1 | -1.7% | |||||
| Operating expenses (constant FX) | (541.7) | (507.7) | -34.0 | -6.7% | |||||
| EBITDA | 927.7 | 994.6 | -66.9 | -6.7% | |||||
| EBITDA (constant FX) | 927.7 | 955.5 | -27.8 | -2.9% |
Reported revenue was lower than the prior period due to the weaker U.S. dollar compared to 2017. At constant FX, lower periodic and other revenue was fully offset by underlying revenue growth of EUR 29.2 million (or 2.1%).
Operating expenses were EUR 9.1 million higher as reported and EUR 24.3 million higher at constant FX excluding a restructuring charge of EUR 9.7 million as part of the company's on-going optimisation programme. The balance of the movement at constant FX reflects higher operating expenses, primarily to support the expansion of SES Networks which has delivered double-digit growth (year-on-year) in its underlying revenue for the nine months ended 30 September 2018.
Group EBITDA of EUR 927.7 million for YTD 2018 represented an EBITDA margin of 63.1% (YTD 2017: 65.1%), or 63.8% excluding the restructuring charge noted above.
DEPRECIATION, AMORTISATION AND OPERATING PROFIT
| EUR million | YTD 2018 | YTD 2017 | Change | Change (%) | |||||
| Depreciation and impairment expense | (463.7) | (488.0) | +24.3 | +5.0% | |||||
| Amortisation expense | (59.7) | (58.2) | -1.5 | -2.7% | |||||
| Depreciation, impairment and amortisation | (523.4) | (546.2) | +22.8 | +4.2% | |||||
| Depreciation, impairment and amortisation (constant FX) | (523.4) | (519.9) | -3.5 | -0.7% | |||||
| Operating profit | 404.3 | 448.4 | -44.1 | -9.8% | |||||
| Operating profit (constant FX) | 404.3 | 435.6 | -31.3 | -7.2% |
Reported depreciation, impairment and amortisation expense reduced by EUR 22.8 million compared with the prior period which included an impairment charge of EUR 38.4 million. At constant FX, this item offset the higher YTD 2018 depreciation expense which was driven by the entry into service of new satellites since 30 September 2017.
Group operating profit represented an operating profit margin of 27.5% (YTD 2017: 29.4%), or 28.2% excluding the restructuring charge of EUR 9.7 million as noted above.
PROFIT ATTRIBUTABLE TO SES SHAREHOLDERS
| EUR million | YTD 2018 | YTD 2017 | Change | Change (%) | |||||
| Net interest expense and other | (134.7) | (141.6) | +6.9 | +4.9% | |||||
| Capitalised interest | 23.8 | 36.5 | -12.7 | -34.9% | |||||
| Net foreign exchange gains | (0.6) | 2.9 | -3.5 | -118.8% | |||||
| Net financing costs | (111.5) | (102.2) | -9.3 | -9.1% | |||||
| Profit before tax | 292.8 | 346.2 | -53.4 | -15.4% | |||||
| Income tax benefit/(expense) | 27.3 | 49.5 | -22.2 | -44.8% | |||||
| Profit after tax | 320.1 | 395.7 | -75.6 | -19.1% | |||||
| Non-controlling interests | (16.4) | (1.2) | -15.2 | n/m | |||||
| Profit attributable to SES shareholders | 303.7 | 394.5 | -90.8 | -23.0% | |||||
| Coupon on hybrid (perpetual) bond, net of tax | (36.0) | (36.3) | +0.3 | +0.8% | |||||
| Adjusted profit attributable to SES shareholders | 267.7 | 358.2 | -90.5 | -25.3% | |||||
| Earnings per A Class share | EUR 0.59 | EUR 0.77 | -0.18 | -23.4% |
Net financing costs were EUR 9.3 million higher than the prior period as lower capitalised interest and lower net foreign exchange gains offset a reduction in net interest expense.
The positive income tax contribution included the recognition of a one-time deferred tax asset relating to GovSat-1 in Q1 2018, as well as the transfer of the O3b Jersey business to Luxembourg in Q2 2018. The group's normalised effective tax rate was 25.6% in YTD 2018 (YTD 2017: 17.2%).
Recognition of the deferred tax asset relating to GovSat-1 accounted for the increase in non-controlling interests as the satellite is owned by GovSat, a 50/50 public private partnership between SES and the Government of Luxembourg.
Consequently, net profit attributable to SES shareholders<
