- Business Wire
SES S.A. announced strong financial results for the year ended 31 December 2018, beating revenue outlook on the back of a standout Networks performance and posting double-digit growth in Free Cash Flow.
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SES: Full Year 2018 Results
Key financial highlights
- Reported revenue of EUR 2,010.3 million, up 1.7% at constant FX(1)
- Underlying revenue(2) of EUR 1,963.2 million; up 1.9%(1) (Video: -4.0%(1,2) and Networks +15.8%(1,2))
- Breakout year for SES Networks which delivered double-digit underlying growth and growth in all three market segments
- EBITDA of EUR 1,255.5 million representing EBITDA margin of 62.5% (2017: 65.1%); 63.0% excluding restructuring charge
- Net profit attributable to SES shareholders of EUR 292.4 million
- Free Cash Flow before financing activities up 14.4% to EUR 870.5 million with investing activities 34.6% lower than 2017
- Net debt to EBITDA of 3.29 times, in line with expectations and reflecting net debt reduction of EUR 202.5 million (or 5.5%)
- 2020 outlook trimmed for Video; Networks outlook unchanged, supporting revenue and EBITDA growth
- Board is proposing a 2018 dividend per A share of EUR 0.80, stable with respect to 2017
| Change (%) | |||||||||
| EUR million | FY 2018 | FY 2017 | Reported | Constant FX(1) | |||||
| Revenue | 2,010.3 | 2,035.0 | -1.2% | +1.7% | |||||
| EBITDA | 1,255.5 | 1,324.2 | -5.2% | -2.6% | |||||
| Operating profit | 391.1 | 610.6 | -36.0% | -34.6% | |||||
| Net profit attributable to SES shareholders | 292.4 | 596.1 | -50.9% | n/a | |||||
| Basic earnings per A share | EUR 0.54 | EUR 1.21 | -55.4% | n/a | |||||
| Dividend per A share | EUR 0.80 | EUR 0.80 | Unchanged | 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: "2018 was a good year for SES. We have delivered top-line growth, exceeding the top end of our revenue outlook on the back of an exceptionally strong year for SES Networks. We are transforming our business internally and externally, retooling the organisation in response to the strong demand for end-to-end services, managing operational costs while expanding competencies and capabilities to drive growth. The strong focus on cash flow and cost control that started in 2018 will continue and accelerate in 2019.
It was a breakout year for our networks business with double-digit underlying revenue growth, fuelled by advances in all three major market verticals and the strongest year to date in terms of new business signed. Aeronautical was the standout segment in 2018 with the entry into service of SES-15 at the start of the year, while in cruise we consolidated our leading position with important wins with Carnival, MSC and Genting. Our U.S. Government business grew substantially with strong adoption of O3b, including the signature of a Blanket Purchase Agreement. In Global Government, we expanded our relationship with both the United Nations and European Space Agency, as well as delivering on important infrastructure projects such as our cooperation with the Government of Burkina Faso. In Fixed Data, we returned to growth in the segment that's been most impacted by the disruption in our industry, built on customer examples such as full year revenues from O3b deployment with ETECSA in Cuba, our support to the APEC summit in PNG with DataCo, the customer adoption of managed services on MEO and GEO assets with Millicom, and the growth of our business with the likes of Claro in the Amazonas region in Brazil.
SES Video, representing two-thirds of our group revenue, also delivered on its 2018 revenue outlook and scored important wins despite challenging market conditions. We signed new customers and platforms while securing important renewals in our core neighbourhoods, including with Viacom, M7, QVC and Channel 4 in Europe as well as Comcast in North America. Given our 30+ year experience as one of the first providers of Direct-to-Home (DTH) services, I am delighted that we signed multi-year agreements to launch and expand new DTH platforms in the Caribbean with Kiwisat and in Eastern Europe with Telekom Srbija. In MX1, our video services business, new deals were secured with Agence France-Press, Discovery and Cell-C, while our HD+ service in Germany expanded with the addition of an Ultra High Definition channel from RTL. We continue to carry more HD and UHD channels across our network than any other satellite service provider.
2018 also saw us make significant progress with our C-band initiative in the U.S. and our market-based proposal is well placed to facilitate a leading position for the U.S. in 5G while protecting the important broadcast and other communities that we serve.
2019 is going to be another important year for SES as look to capitalise on a strong 2018. Our focus for 2019 is to deliver exceptional service and experience to our customers, driving their success and in so doing creating value for SES."
Key business highlights
- Group revenue was EUR 2,010.3 million for FY 2018 (+1.7% at constant FX compared with the prior period). Underlying revenue (excluding periodic and other) grew by 1.9% (year-on-year) at constant FX to EUR 1,963.2 million. Periodic and other revenue for FY 2018 was EUR 47.1 million.
- Video underlying revenue of EUR 1,292.1 million was 4.0% lower (year-on-year) at constant FX due to lower video distribution revenue (-5.2%), notably in the International markets where trading conditions remain highly competitive, while video services was in line (-0.5%) with the prior year.
- Networks' underlying revenue grew by 15.8% (year-on-year) at constant FX to EUR 671.1 million reflecting the benefit of SES' unique (GEO-MEO-terrestrial) network architecture. All three of Networks' verticals delivered year-on-year growth with Mobility up 35.4%, Government up 19.4% and Fixed Data up 2.1%.
- EBITDA of EUR 1,255.5 million (down 2.6% at constant FX) represented an EBITDA margin of 62.5%, or 63.0% excluding a restructuring charge of EUR 11.1 million associated with the group's on-going optimisation programme.
- Net profit attributable to SES shareholders was EUR 292.4 million including an income tax benefit of EUR 41.9 million (compared with an income tax benefit of EUR 130.6 million in 2017) mainly relating to GovSat-1 and the O3b business, recognised in H1 2018. Net profit also included EUR 156.4 million of impairment expenses (2017: EUR 40.3 million) related to the more prudent outlook in Video (including for North American wholesale and video services) and recognised as part of the group's regular impairment testing process.
- Free Cash Flow before financing improved by 14.4% (year-on-year) to EUR 870.5 million, benefitting from a combination of a cash conversion ratio of 94.9% and lower net cash absorbed by investing activities as compared with FY 2017.
- The Group's Net debt to EBITDA ratio (as per the rating agency methodology) was 3.29 times at 31 December 2018, compared with 3.27 times at 31 December 2017. SES remains committed to its investment grade credit rating which was recently re-affirmed by both Moody's and S&P.
- EUR 900 million of refinancing successfully completed in 2018 (including EUR 400 million Schuldschein in December 2018). As a result, SES has no further senior debt maturities to be financed until early 2020.
- SES's fully protected contract backlog at 31 December 2018 was EUR 6.8 billion (gross backlog of EUR 7.5 billion when including backlog subject to contractual break clauses). Over 85% of 2019 expected group revenue is already contractually committed.
- During 2018, Management embarked on an organisational transformation of the business, flattening layers within the organisation, bringing together all Technology and IT functions under common leadership and forming a Global Services team to drive customer service and success across SES. This will accelerate in 2019 with the formation of a single video team, bringing together the SES video infrastructure business with MX1, enhancing the value of SES' service capabilities to our core video customers.
- 2019 outlook of EUR 1,975 - 2,040 million for group revenue and EUR 1,220 - 1,265 million for group EBITDA (excluding a restructuring charge of EUR 25 - 30 million associated with on-going optimisation initiatives) reflects continued growth in underlying revenue, offset by lower expected periodic and other revenue which totalled EUR 47.1 million in 2018.
- 2020 outlook of EUR 2,060 - 2,160 million for group revenue and EUR 1,260 - 1,340 million for group EBITDA is trimmed to include a more prudent view of expected revenue for SES Video, while SES Networks revenue outlook is re-affirmed and is expected to drive in group revenue and EBITDA.
- In its meeting on 26 February 2019, the SES Board of Directors decided to propose a dividend per A share of EUR 0.80 for 2018, stable with respect to 2017. At the same meeting, after 8 years as a Board Member, Marc Beuls announced his decision to step down as a Director for personal reasons, effective on 4 April 2019, being the date of the Annual General Meeting of SES. The SES Board decided to propose to the shareholders to reduce the size of the Board accordingly to 14.
OPERATIONAL REVIEW
REVENUE BY BUSINESS UNIT
| Change (%) | |||||||||||||
| EUR million | FY 2018 | FY 2017 | Reported | Constant FX | |||||||||
| Video | 1,306.3 | 1,383.0 | -5.5% | -3.7% | |||||||||
| - Underlying | 1,292.1 | 1,373.2 | -5.9% | -4.0% | |||||||||
| - Periodic | 14.2 | 9.8 | n/m | n/m | |||||||||
| Networks | 695.7 | 646.1 | +7.7% | +12.9% | |||||||||
| - Underlying | 671.1 | 606.6 | +10.6% | +15.8% | |||||||||
| - Periodic | 24.6 | 39.5 | n/m | n/m | |||||||||
| Sub-total | 2,002.0 | 2,029.1 | -1.3% | +1.5% | |||||||||
| - Underlying | 1,963.2 | 1,979.8 | -0.8% | +1.9% | |||||||||
| - Periodic | 38.8 | 49.3 | n/m | n/m | |||||||||
| Other(1) | 8.3 | 5.9 | n/m | n/m | |||||||||
| Group Total | 2,010.3 | 2,035.0 | -1.2% | +1.7% | |||||||||
"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 Video or Networks
2018 underlying revenue of EUR 1,963.2 million was EUR 37.1 million (or 1.9%) higher at constant FX, compared with the prior year, fuelled by double-digit growth delivered by the expansion of the Networks business. Total group revenue included periodic and other revenue of EUR 47.1 million (2017: EUR 55.2 million).
Fourth quarter 2018 underlying revenue of EUR 517.6 million was EUR 7.9 million (or 1.6%) higher than fourth quarter 2017 at constant FX.
Video: 65% of group revenue (2017: 68%)
VIDEO REVENUE BY VERTICAL
| Change (%) | |||||||||||||
| EUR million | FY 2018 | FY 2017 | Reported | Constant FX | |||||||||
| Video Distribution | 983.1 | 1,053.8 | -6.7% | -4.7% | |||||||||
| - Underlying | 968.9 | 1,044.0 | -7.2% | -5.2% | |||||||||
| - Periodic | 14.2 | 9.8 | n/m | n/m | |||||||||
| Video Services | 323.2 | 329.2 | -1.8% | -0.5% | |||||||||
| - Underlying | 323.2 | 329.2 | -1.8% | -0.5% | |||||||||
| - Periodic | -- | -- | n/m | n/m | |||||||||
| Video (total) | 1,306.3 | 1,383.0 | -5.5% | -3.7% | |||||||||
| - Underlying | 1,292.1 | 1,373.2 | -5.9% | -4.0% | |||||||||
| - Periodic | 14.2 | 9.8 | n/m | n/m | |||||||||
Video underlying revenue of EUR 1,292.1 million was EUR 54.2 million (or 4.0%) lower at constant FX than the prior year. Total Video revenue included EUR 14.2 million of periodic revenue (2017: EUR 9.8 million).
Fourth Quarter 2018 underlying revenue of EUR 324.6 million was EUR 26.3 million (or 7.5%) lower at constant FX than the prior period, mainly driven by lower distribution revenue and lower services (where the year-on-year comparison reflected an exceptional Q4 2017).
At 31 December 2018, SES is now delivering 8,151 total TV channels to viewers around the world. This represented an increase of 6% (year-on-year) and was driven by the introduction of new High Definition (up 7% year-on-year to 2,777 HD TV channels) and Ultra High Definition (up 46% to 41 commercial UHD TV channels) offerings across all three of SES' major regions. 66.5% of total TV channels are now broadcast in MPEG-4, compared with 65.0% a year ago.
Video Distribution
2018 underlying revenue was 5.2% lower (constant FX) than the prior year.
The European business benefitted from important long-term renewals, notably in the U.K. and Germany, while the expiration in Q3 2018 of certain capacity contracts signed on a short-term basis contributed to overall revenue being slightly lower (year-on-year).
North America decreased (year-on-year), due to lower volume resulting from the switch-off of Standard Definition 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 are challenging with recently launched DTH platforms experiencing slower than expected subscriber growth which led to lower (year-on-year) revenue, while competition to establish new DTH platforms remains intense. The business continues to focus on building the commercial pipeline, notably for SES-9 (Asia-Pacific) and SES-10 (Latin America).
Fourth quarter 2018underlying revenue of EUR 244.1 million was 6.4% lower (constant FX) than the prior period.
Video Services
Underlying revenue was overall in line (-0.5%) with the prior year.
HD+ benefitted 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.
In MX1, the non-renewal of certain low-margin, 'legacy' services in the fourth quarter of 2018 contributed to overall revenue being slightly lower (year-on-year).
Fourth quarter 2018underlying revenue of EUR 80.5 million was 10.8% lower (constant FX) compared with Q4 2017. The year-on-year comparison reflected an exceptional Q4 2017 as noted above.
Networks: 35% of group revenue (YTD 2017: 32%)
NETWORKS REVENUE BY VERTICAL
| Change (%) | |||||||||||||
| EUR million | FY 2018 | FY 2017 | Reported | Constant FX | |||||||||
| Government | 275.4 | 245.9 | +12.0% | +16.2% | |||||||||
| - Underlying | 267.6 | 233.0 | +14.9% | +19.4% | |||||||||
| - Periodic | 7.8 | 12.9 | n/m | n/m | |||||||||
| Fixed Data | 255.8 | 254.8 | +0.4% | +5.5% | |||||||||
| - Underlying | 239.0 | 245.8 | -2.8% | +2.1% | |||||||||
| - Periodic | 16.8 | 9.0 | n/m | n/m | |||||||||
| Mobility | 164.5 | 145.4 | +13.1% | +20.3% | |||||||||
| - Underlying | 164.5 | 127.8 | +28.6% | +35.4% | |||||||||
| - Periodic | -- | 17.6 | n/m | n/m | |||||||||
| Networks (total) | 695.7 | 646.1 | +7.7% | +12.9% | |||||||||
| Underlying | 671.1 | 606.6 | +10.6% | +15.8% | |||||||||
| Periodic | 24.6 | 39.5 | n/m | n/m | |||||||||
Underlying revenue of EUR 671.1 million was EUR 91.3 million (or 15.8%) higher at constant FX, compared with 2017, reflecting double-digit growth in Government and Mobility, while Fixed Data also grew.
Total Networks revenue included EUR 24.6 million of periodic revenue (2017: EUR 39.5 million, including the second of two up-front revenue contributions from the sale of transponders to Global Eagle Entertainment).
Fourth quarter 2018underlying revenue of EUR 193.0 million was 21.6% higher (constant FX) than the prior period, benefiting from positive contributions from all three of the major market verticals (Government, Mobility and Fixed Data).
Government
Underlying revenue grew by 19.4% (year-on-year) in 2018, reflecting strong growth in both the U.S. 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, as well as securing important new business on the GEO fleet.
Global Government also delivered a strong (year-on-year) performance. The extension and expansion of important service commitments, notably to support humanitarian and peacekeeping operations, was complemented by the first revenue contributions from GovSat-1 which began delivering services to government clients at the end of Q1 2018.
Fourth quarter 2018underlying revenue of EUR 74.8 million was 15.4% higher (constant FX) than Q4 2017.
Fixed Data
2018 underlying revenue grew 2.1% (year-on-year) at constant FX.
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.
Fourth quarter 2018underlying revenue of EUR 72.5 million was 17.0% higher (constant FX) than the fourth quarter 2017, including an important contribution from the provision of managed connectivity services delivered in support of the 26th annual Asia-Pacific Economic Cooperation (APEC) forum event in Papua New Guinea.
Mobility
Underlying revenue grew by 35.4% (year-on-year) at constant FX as significant growth in aeronautical was complemented by additional new business wins in maritime.
Aeronautical delivered significant growth, notably in North America, with the start of commercial services on SES-15 at the beginning of 2018, while important incremental agreements were also signed in the second half of 2018.
This was complemented by a positive (year-on-year) development in maritime, notably in the second half of 2018, which benefited from the on-going expansion of services with existing and new cruise customers.
Fourth quarter 2018underlying revenue of EUR 45.7 million was 43.1% higher (constant FX) than the prior period, including the first full three-month contribution from SES-14 which began delivering services in September 2018.
Other Revenue
Other revenue of EUR 8.3 million (2017: EUR 5.9 million) includes transactions not directly applicable to Video or Networks. This included EUR 7.3 million of other revenue in Q4 2018 (Q4 2017: EUR 0.2 million).
Future satellite capacity and fleet update
COMMITTED LAUNCH SCHEDULE
| Satellite | Region | Application | Launch Date | ||||
| SES-12 | Asia-Pacific | Video, Fixed Data, Mobility | Launched (June 2018) | ||||
| SES-14 | Latin America | Video, Fixed Data, Mobility | Launched (January 2018) | ||||
| GovSat-1(1) | 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 | Q1 2019 | ||||
| SES-17 | Americas | Fixed Data, Mobility, Government | H1 2021 | ||||
| O3b mPOWER (satellites 1-7) | Global | Fixed Data, Mobility, Government | H1 2021 | ||||
| 1) Procured by GovSat (a 50/50 public private partnership between SES and the Government of Luxembourg) | |||||||
2018 was an important and successful year with three Geostationary Earth Orbit (SES-14, GovSat-1 and SES-12) and four O3b Medium Earth Orbit (satellites 13-16) satellites successfully launched, adding future growth capabilities for SES Networks.
GovSat-1, SES-14 and the O3b satellites all commenced services during 2018, contributing to the overall growth in SES Networks, which also benefitted from the beginning of commercial services on SES-15 (launched in 2017) in January 2018.
SES-12 began delivering services at the end of February 2019 and the launch of the final four O3b satellites (satellites 17-20) of the first generation remains on track for Q1 2019, with both adding incremental capabilities in the Networks' segments.
FINANCIAL OUTLOOK
The financial outlook assumes a EUR/USD FX rate of EUR 1 = USD 1.15, nominal launch schedule and satellite health status.
SES delivered on the financial outlook for 2018 with group revenue exceeding the top end of the range, fuelled by double-digit growth in SES Networks and SES Video delivering in line with the company's expectations. In addition, total capital expenditure (representing the net cash absorbed by the group's investing activities excluding acquisitions and financial investments) of EUR 321 million in 2018 was EUR 139 million, or 30%, lower than the outlook.
| 2019 | 2020 | ||||
| Video revenue | EUR 1,225 - 1,255 million | EUR 1,200 - 1,250 million (from EUR 1,250 - 1,300 million) | |||
| Networks revenue | EUR 740 - 775 million | EUR 850 - 900 million | |||
| Other revenue | Approximately EUR 10 million | Approximately EUR 10 million | |||
| Group revenue | EUR 1,975 - 2,040 million | EUR 2,060 - 2,160 million (from EUR 2,110 - 2,210 million) | |||
| EBITDA | EUR 1,220 - 1,265 million(1) | EUR 1,260 - 1,340 million (from EUR 1,340 - 1,410 million) | |||
| 1) Excluding a restructuring charge of EUR 25-30 million expected to be recognised in 2019 | |||||
2019 expected group revenue reflects continued underlying growth, offset by lower forecast periodic and other revenue (compared with EUR 47 million in 2018).
2020 group revenue is expected to grow reflecting the strong outlook for SES Networks which is unchanged, while the outlook for SES Video is trimmed to include a more prudent view of expected development of volume in North American distribution, particularly wholesale, and a more prudent view for the level of growth expected in video services.
EBITDA development in 2019 and 2020 reflects the combination of expected growth in underlying revenue, driven by the expansion of end-to-end solutions in SES Networks which will require additional investment to deploy. This additional investment is expected to be largely offset by operational efficiencies in other areas generated by SES' on-going optimisation programme.
Expected capital expenditure (representing the net cash absorbed by the group's investing activities excluding acquisitions and financial investments) for the period of 2019-2022 is consistent with SES' previous expectations and comprises EUR 450 million in 2019, EUR 390 million in 2020, EUR 1,200 million in 2021 (principally relating to the investment in O3b mPOWER) and EUR 450 million in 2022, while the capital expenditure for 2023 is expected to be EUR 450 million.
FINANCIAL REVIEW
Income Statement
REVENUE, OPERATING EXPENSES AND EBITDA
| EUR million | FY 2018 | FY 2017 | Change | Change (%) | |||||
| Revenue | 2,010.3 | 2,035.0 | -24.7 | -1.2% | |||||
| Revenue (constant FX) | 2,010.3 | 1,977.4 | +32.9 | +1.7% | |||||
| Operating expenses | (754.8) | (710.8) | -44.0 | -6.2% | |||||
| Operating expenses (constant FX) | (754.8) | (689.0) | -65.8 | -9.5% | |||||
| EBITDA | 1,255.5 | 1,324.2 | -68.7 | -5.2% | |||||
| EBITDA (constant FX) | 1,255.5 | 1,288.4 | -32.9 | -2.6% | |||||
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