Home >> September 2023 Edition >> The Forrester Report #1: SES: Much More Cash To Come From C-Band
The Forrester Report #1: SES: Much More Cash To Come From C-Band
Chris Forrester, Senior Columnist


However, tech problems with mPOWER

SES told analysts that, while the company was looking forward to banking some $3 billion in cash from the FCC’s C-band compensation scheme (and likely to be banked early to mid-Q4/2023) there was more cash likely to be forthcoming, according to CFO Sandeep Jalan... and to “stay tuned.”

Acting CEO Ruy Pinto and Jalan were briefing analysts after the company’s results announcement which reported a near 10 percent rise in overall revenues for the half-year. SES reported a very healthy rise of 9.8% in overall revenues at 987 million feuros or the 6 months to June 30.

SES has — at least, to a certain extent — rebutted recent rumours of further slippage in the launch schedule of next satellites in its important mPOWER fleet. SES stated that two mPOWER craft (satellites 5 and 6) will launch during Q3 — commercial service of the fleet will start later this year. mPOWER 7 and 8 will launch later this year. mPOWER satellites 9, 10 and 11 will launch in 2024. However, there have been some issues (see below).

The key verticals revealed...

Video division: 486 million euros, a fall of 5.2%, y-o-y.
Networks division 501 million euros, growth of 3.1%
(Mobility up 13.8%)

Contract backlog for SES as of June 30, 2023, was 4.7 billion euros (5.7 billion euros gross backlog, including backlog with contractual break clauses).

Pinto said, “The strong start to the year continued into Q2 resulting in a solid H1 financial performance and confirmation of the 2023 financial outlook. Networks is growing on the back of strong performance in Mobility and robust outturns in Government and Fixed Data. In Video, we have signed additional important renewals which underpin the long-term cash fundamentals and value of our direct-to-home neighborhoods. With O3b mPOWER expected to be in commercial service by the end of this year, customers will benefit from an expanded set of capabilities for flexible, guaranteed, and high-performance connectivity to meet requirements in competitive, high growth segments,” 

The prospects of more revenue, over and about the $3 billion, plus around $500 million in cost reimbursements from the refitting of filters and new reception equipment for its North American clients and their head-ends, the prospects of another slice of the C-band cake helped drive SES’ share price up more than 15 percent on August 3 to around €6.68 and a welcome improvement on its lacklustre performance recently.

However, there was also bad news in the form of a sporadic malfunction of a fraction of the electronic components on board orbiting mPOWER satellites.

Management suggested they are able to quickly recover function and suggested it was not worried on any short or long term impact. On mPOWER 5 and 6 craft management suggested the satellites were undergoing further tests in Boeing’s facility and would be launched in Q3 for a late 2023 entry into service date for mPower,” said equity analyst Sami Kassab from investment bank Exane/BNPP.

Given the recurring postponement of mPOWER satellite launches and in the context of today’s disclosure of sporadic electronic malfunction, it is hard not see a causality link between these tech issues and the delayed entry into service of the constellation,” added Kassab.

mPOWER is the new fleet for SES’s O3b segment, and by any measure there has been slippage on the launch – and thus revenue-generating – satellites. However, on the more positive upside SES management argued that despite increased competition from Elon Musk’s Starlink in Mobility, its maritime revenues grew 30 percent and continued to perform well.

Kassab’s comments on the overall position at SES stated: “SES H1 results were strong and marked by a return to positive group organic growth in Q223.

It confirmed its FY guidance and while the C-band money is not yet in the bank, management announced a surprise share buyback programme (of €150m) and clearly suggested that more cash returns was on the agenda. Today’s share price spike is deserved but as long as mPower is not proving a commercial success, shares are likely to remain volatile. We reaffirm our Outperform rating.”

Eutelsat Video revenues tumble 8.3% 
Return to growth next year, helped by OneWeb

The position at Eutelsat is complicated by its impending merger with OneWeb, and the cancellation for the next three years of any sort of dividend to shareholders. Eutelsat’s full year results – to June 30 - were mixed with its Broadcast Video division (62% of income) falling y-o-y by 8.3% (like-for-like, or 6.3% as reported) and representing the seventh year in a row that Video has declined. But on the more positive side its fast-growing Mobile Connectivity segment grew 26.8% (like-for-like, or 37.9%).

The numbers failed to impress ratings agency Fitch which downgraded Eutelsat’s debt to BBB- (from BBB) and kept the business on

Rating Watch Negative’. CEO Eva Berneke said that the expected merger with OneWeb would likely close at the end of September. She added that OneWeb had achieved a secured backlog of $900 million as at the end of June, and up $300 million since October of 2022. She said Eutelsat is revising down the revenue projection for the combined group for the coming fiscal year by 2% following delays in the production and testing of OneWeb terminals for its satellites.

Having the right terminals available with B2B customers is taking more time. And in some cases flat-panel terminals have been delayed, but they are now there,” Berneke said. “The trajectory for the outer years remains unchanged. Our market expectations, as well as the strong synergy potential, give us confidence in the value-creation the combined entity can generate in the long run.”

The lost revenues in its Video division reflected the end of contracts with DigiTurk and the forced cancellation of contracts with Russia and Iran. Total revenues were €1,131 million, down by 1.8% compared to the previous year. Russian distribution of satellite channels is probably now lost forever given that Eutelsat’s Russian clients have found alternate platforms and the Ukraine war shows little sig of abating.

Berneke informed the market that this coming trading year would see a restructuring of its revenue divisions. “As of June 30, 2023, the breakdown of the Operating Verticals revenues will evolve to better reflect the respective end markets which they address. The new framework will be altered from five verticals (Broadcast, Data & Professional Video, Government Services, Fixed Broadband and Mobile Connectivity) to four: Video, henceforth encompassing Broadcast and professional Video, Fixed Connectivity, encompassing Data and Fixed Broadband, Mobile Connectivity, and Government services.”

Q4 revenues stood at 286 million euros, down 2.3% like-for-like. Revenues of the five Operating Verticals stood at 283 million euros, down 4.1% y-o-y and up 4.7% q-o-q on a like-for-like basis. Eutelsat’s all-important contracted backlog also fell back. The backlog stood at 3.4 billion euros as of June 30, 2023, versus 4.0 billion a year earlier. 

The natural erosion of the backlog, especially in the Video segment, more than offsets the contribution of the EGNOS contract in Government as well as other incremental contracts in Mobility. The backlog was equivalent to 3.0 times 2021-22 revenues, and Video represented 59 percent of the total,” said Eutelsat.

Eutelsat said its future Video revenues are expected to be broadly in line with market trends of a mid-single digit decline, excluding the effect of sanctions which will be embarked for a full 12 months versus six months in FY 2022-23. OneWeb’s revenues reached the $50 million objective at end-June 2023. For FY 2023-24, the later-than-expected availability of terminals for key verticals will lead to a delay in revenue recognition when compared to the objective communicated in October of 2022. In other words, the company’s targets have been missed. Eutelsat’s 2024 Outlook: Video revenues are expected to be broadly in line with market trends of a mid-single digit decline, excluding the effect of sanctions which will be embarked for a full 12 months versus six months in FY 2022-23. Government Services will continue to reflect the outcome of past and upcoming US DoD renewals and a tougher comparison basis with FY 2022-23 due to the abovementioned one-off DLR contract. Revenues will however benefit from the EGNOS GEO-4 contract on HOTBIRD 13G, set to generate 100 million euros in revenues over 15 years.

Both the Mobile Connectivity and Fixed Connectivity verticals are expected to experience double-digit growth in FY 2023-24 on the back of the entry into service of Eutelsat 10B and KONNECT VHTS, both with firm pre-commitments, and positive commercial traction.

Eutelsat now forecasts between 1.32 billion euros and 1.42 billion euros in revenues from its operating verticals for the coming 12 months.

Berneke also said Eutelsat, as part of a group featuring Europe’s largest space companies, is preparing to submit a proposal for a role in the European Union’s proposed multi-orbit connectivity constellation [by August 7th.].  The deadline for the first round of proposals for Europe’s 6 billion euros IRIS² project (Infrastructure for Resilience, Interconnectivity and Security by Satellite), is August 7th.

Eutelsat and other satellite fleet operators Hispasat, SES and Airbus are part of a large consortium of companies that made the only application. However, it is far from certain that the EU will permit Eutelsat to be part of the consortium given that the UK has a ‘golden share’ in OneWeb Eutelsat expects to receive $382m in compensation from the FCC under its C-band agreement. Payment is expected in September and will be subject to a 30% tax payment. 30% tax payment.