Eutelsat Communications (ETCMY) (H1 2025) Earnings Call Highlights: Revenue Growth Amidst Challenges

GuruFocus.com
15 Feb
  • Total Revenue: EUR606 million, up 5.9% on a reported basis and 4.4% like-for-like.
  • Operating Vertical Revenues: EUR600 million, up 3.9% like-for-like.
  • Adjusted EBITDA: EUR334.9 million, down from EUR365.6 million a year earlier; up 4.9% like-for-like.
  • Adjusted EBITDA Margin: 55.1% at constant currency, 54.8% like-for-like.
  • Net Debt to Adjusted EBITDA Ratio: 3.92, compared to 3.79 at the end of June '24.
  • Video Revenue: EUR309 million, down 6.4% year-on-year.
  • Fixed Connectivity Revenue: EUR119 million, up 22% year-on-year.
  • Government Services Revenue: EUR96 million, up 22% year-on-year.
  • Mobile Connectivity Revenue: EUR75 million, up 7% year-on-year.
  • Gross CapEx: Expected between EUR500 million and EUR600 million, down from initial guidance.
  • Goodwill Impairment: EUR535 million on GEO assets.
  • Group Share of Net Income: Loss of EUR873.2 million, compared to a loss of EUR191.3 million a year earlier.
  • Backlog: EUR3.7 billion, down from EUR3.9 billion a year earlier.
  • Average Cost of Debt: 4.84%, up from 3.16% in H1 '23, '24.
  • Warning! GuruFocus has detected 3 Warning Signs with ETCMY.

Release Date: February 14, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • Eutelsat Communications (ETCMY) reported a 5.9% increase in total revenues to EUR606 million on a reported basis.
  • The company confirmed its full-year revenue and EBITDA margin objectives, despite less headroom than initially anticipated.
  • Eutelsat's gross CapEx is expected to be lower than initially guided, now between EUR500 million and EUR600 million.
  • The IRIS2 multi-orbit constellation project, valued at EUR10.6 billion, received the go-ahead, with Eutelsat investing EUR2 billion.
  • Eutelsat secured significant contracts, including a multiyear agreement with Q-KON and a partnership with NIGCOMSAT for LEO satellite services.

Negative Points

  • Eutelsat took a goodwill impairment of EUR535 million on various GEO assets due to lower expected future cash flows.
  • Video revenues, which represent 51% of total revenues, declined by 6.4% year on year.
  • The net debt to adjusted EBITDA ratio increased to 3.92 from 3.79 at the end of June '24.
  • Group share of net income was a loss of EUR873.2 million, significantly higher than the previous year's loss of EUR191.3 million.
  • The company faces increased competition in the connectivity market, particularly from Starlink, impacting GEO business.

Q & A Highlights

Q: Is the increased vigilance on GEO driven by cannibalization from LEO, and can LEO offset the GEO decline? Also, what is the expected GEO CapEx alongside the LEO extension? A: The vigilance on GEO is due to headwinds in B2C connectivity, particularly from Starlink. While B2C is not Eutelsat's main focus, there is a shift towards LEO in connectivity. The LEO extension is expected to cost EUR2.2 billion over four years, and GEO CapEx will be carefully managed, with partnerships being explored to mitigate costs. (Eva Berneke, CEO)

Q: What are the lease costs for the ground terminal proceeds, and how will the EUR500 million cash proceeds be used? A: The annual cost is estimated at EUR70 million to EUR80 million, mostly OpEx rather than lease costs. The EUR500 million cash proceeds will strengthen financial resources and contribute to the LEO constellation extension. (Christophe Caudrelier, CFO)

Q: How much of the EUR2 billion to EUR2.2 billion Gen 1 continuity CapEx will be financed with ECA? A: The expectation is to finance two-thirds to four-fifths of the Gen 1 continuity CapEx with ECA financing. (Eva Berneke, CEO)

Q: Can you clarify the timeline for IRIS2 CapEx and the expected revenue from OneWeb? A: IRIS2 CapEx will start in '28, with major spending in '29 and '30. The EUR6.5 billion revenue is expected from IRIS2 over the concession period. OneWeb revenues are ramping up well, contributing to the full-year guidance. (Eva Berneke, CEO)

Q: What is the strategy for competing with larger US competitors in the LEO market? A: Eutelsat's LEO satellites fly higher, requiring fewer satellites for global coverage. The focus is on a B2B strategy, offering an alternative to Starlink, with significant interest from customers seeking non-US options for resilience and geopolitical reasons. (Eva Berneke, CEO)

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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