Eutelsat’s Belmer Hopeful of Bright Future After Promising Results
Eutelsat released its First Quarter financial results last week and there were some encouraging signs as the operator looks to navigate the COVID-19 era. The operator’s broadcast revenues remained resilient, a positive sign because broadcast still accounts for over 60% of the operator’s revenues.
Giles Thorne, managing director of Equity Research, TMT, Jefferies hailed the company’s performance in broadcast. He said in a research note, “After being finally in-line for the first time in seven quarters in 2Q20, Eutelsat has delivered that rarest of sightings in 3Q20 – out-performance! Broadcast revenue was up 2.5% on a reported basis, up 2.0% excluding the 1 million euro positive one-off. The actual performance finally falling into line behind management’s long-running rhetoric that the segment was resilient.”
Eutelsat CEO Rodolphe Belmer spoke with Via Satellite about the company’s latest results, Eutelsat’s potential interest in OneWeb, as well his reaction to the Intelsat bankruptcy news of last week. This is the first section of a two-part interview.
VIA SATELLITE: I hope you and your family are staying safe and keeping well. I would like to ask you what Eutelsat as a company is doing in the face of COVID-19. How are you safeguarding employee health and what measures is the company taking during this time?
Belmer: Our first priority in these unusual times has been to safeguard the health of our employees as well as support our customers, since what we do for them is critical in many cases. We are present in more than two dozen countries across the world. We have worked in each location with the authorities to ensure the respect of all of the containment measures. They have been slightly different in each country, and as a company with a global footprint, we have had to adapt to the measures imposed by each local authority. We have done this in a very efficient manner.
The vast majority of our workforce now works from home and this has been very effective. We have been able to serve our customers very well, even with a lot of employees working from home. We have been able to develop the relationships with our customers and deal with their concerns. We have even been able to sign new contracts during this period.
VIA SATELLITE: Let’s talk about your results. The broadcast numbers were particularly resilient. As more people are home needing to be entertained, do you expect to see the spike in video revenue continue?
Belmer: The fact is our revenues are not proportional to the number of subscribers to satellite. What we sell is the capacity for the channels that we distribute, but it is not proportional to the number of viewers watching those channels. The surge in television consumption during this period will therefore have no direct impact on our revenue. What it does do however is prove that what we do is critically important, particularly in the times we are living in. The broadcast numbers in our successive results confirm what we have been saying for quite some time now — this broadcast business is very resilient. While our competitors’ revenues in broadcast have been declining, ours have been resilient. And it has shown in its resilience since the start of the COVID crisis. So, why is our broadcast business resilient compared to our competitors? First, our geographic footprint is different. We are in emerging markets, which are less exposed to the technology impact of (Over-the-Top) OTT and fiber; and second, because we do mostly (Direct-to-Home) DTH, which is far more resilient than other segments like cable. We think in the future, it will remain resilient for us.
VIA SATELLITE: You mentioned recently that there would be delays in the Eutelsat Quantum program? How long do you think these delays might be?
Belmer: It is difficult to assess with precision. Our Quantum satellite is almost manufactured, almost finished. However, we think the lockdown might cause of a delay to the launch of the program. We are delayed in two respects. Firstly, it will be launched on an Ariane 5 and there has the delay to launches from the Guiana Space Centre in Kourou, French Guiana. Second, we have a co-passenger, and we understand the manufacture of their satellite is being delayed by the lockdown of the manufacturing plant in which it is being finalized. Our best assumption is that the Quantum program will likely be postponed by 2-3 months.
VIA SATELLITE: In terms of capital expenditure plans, has your opinion shifted in terms of whether to invest in Geostationary (GEO) or Low-Earth Orbit (LEO)? How do you see the balance going forward? What is the next stage of your capital expenditure plans?
Belmer: We are very cautious and disciplined when it comes to our approach to capital expenditure. We try to minimize our capital expenditure as much as we can without hampering our ability to renew our fleet, or to expand into new growth verticals such as broadband. What is happening in the industry has proven that we were right to have this very prudent approach to capital expenditure. We have a very solid balance sheet. We will continue to have this approach. We are very focused on value creation, the effectiveness of our capital expenditure and on making sure we invest only as much as needed.
Secondly, we have not changed our view in terms of the advantage of GEO satellites for the time being. Even in terms of connectivity services, particularly with (Very High Throughput Satellites) VHTS technology, we think they are by far, the best value proposition for the telecoms market. This is because of the kind of price per Mbps they provide as well as the massive capacity they can bring. They can unlock demand in the mobility segments as well as the broadband to consumer segment. We are truly convinced of this.
We think, for the moment, that LEO constellations come with significant economic challenges as proven by what has happened to the likes of OneWeb. It is very difficult to derive strong profitability from LEO projects at the moment. It does not mean LEO is not an interesting technology, or that LEO won’t be integrated in the overall communications portfolio in the longer term. We think LEO will be effective in delivering some services and complementing GEO. The issue is timing. Today, the economic challenges of LEO are very, very difficult to overcome.
VIA SATELLITE: There have been strong rumors that Eutelsat is interested in OneWeb’s assets? Can you give us an update here?
Belmer: The Chapter 11 process is underway. Some companies have asked to enter the process (data room). We have been part of that, and are one of the players. The real decisive moment for this Chapter 11 process is the end of June when firm bidding commitments have to be taken, and when an auction will take place between various contenders. At that moment, we will see which companies are interested. Everybody is trying to gather information, understand the situation.
VIA SATELLITE: From the outside, it would appear that OneWeb’s assets would be a perfect fit for Eutelsat? Would you agree?
Belmer: The way we approach our business is to provide long-term value creation for our shareholders. That is our motto. We like technology, innovation, big ideas and we have a passion for technology in business. But our key focus is: are we in a position to provide long-term value for our shareholders? Constellations in LEO come with economic challenges. That is the key consideration for us.
VIA SATELLITE: Intelsat entering Chapter 11 perhaps wasn’t a huge surprise. What was your reaction to the news?
Belmer: I think it was more of a confirmation than news. It is Intelsat’s decision, and they have communicated that they think this Chapter 11 filing will help them restructure their balance sheet and come back stronger into our space and sector. I think they are right. I expect them to come back as a stronger participant in our industry.
VIA SATELLITE: We have seen Speedcast, OneWeb, Intelsat and Phasor go into bankruptcy. We have seen LeoSat go out of business. For a sector that has been remarkably resilient, are these dark days for our industry right now or were all of these expected?
Belmer: This period is marked with challenges. But it is not only this COVID period that is marked with challenges. The major challenges faced by our industry were there even before COVID, as evidenced by some of these situations. We were the only ones to say for a long time that our industry is undergoing a transition: it is in transition between legacy verticals, which are very solid and resilient, but have a certain level of maturity, and the new business of tomorrow which is connectivity, but which requires investment, and where the revenues are still not there yet. This is a transition we need to manage prudently with a focus on maintaining the balance sheet while investing in the future while not yet generating revenues. You need to make sure you improve the profitability of your legacy business as you invest simultaneously in new business opportunities. We have been managing this transition, by managing the profitability and cash-flow generation of our legacy business. At the same time, we have been improving our balance sheet, while also putting ourselves in a position to invest in the future, and specifically in connectivity applications. This approach is pretty unique in the industry, and we think it is one of the best ones in our industry.
VIA SATELLITE: Do you believe the business models around the likes of OneWeb and LeoSat are just fundamentally flawed? They take too much investment and they just flat out don’t work.
Belmer: I am not sure I would totally agree. But, what I would say is that every infrastructure business, even more so when it is a technology-driven business like ours, requires prudence when you invest in a new application or new sector. You have to finance the infrastructure first, and at that stage the business is not there. You still have to develop the demand, and it takes time and effort. You have to manage this path in a prudent way and according to your financial capabilities. One of the issues that we have, with the expansion into connectivity, is that our industry is changing scale in terms of capital expenditure. I mean that, in the past, we have invested in satellites which cost around $200 million per unit to address a certain geographic market. The connectivity segment comes with a higher level of investment since, because of the mobility requirements, you need to cover a larger geographic area, and you need to invest in more satellites, whether GEO or LEO. This adds a level of financial complexity, and this is why we haven’t taken the decision yet to build a global constellation either in LEO or GEO. We don’t want to invest too much too fast in proportion to the size of our company. We don’t want to jeopardize the economic balance of our company.