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Eutelsat sales slump

Paris-based Eutelsat, the world’s third-largest satellite operator, has suffered a dramatic turn-around in its fortunes. Three months ago it was guiding the market to expect a +2/+3 per cent growth in revenues. On May 12, it told analysts that its 2015-16 financial year (which ends on June 30) to expect -3/-1 per cent fall in growth. Worse, Eutelsat says that next year (2016-2017) instead of +4/+6 per cent growth would now likely turn out to be nearer -3/-1 percent, a significant 8 per cent turnaround in revenue expectations.

CEO Rodolphe Belmer was blunt: “Q3 revenue growth was below expectations, reflecting a worse than expected environment in several emerging markets, in particular in Latin America.”  He described several challenging “headwinds” and the need to adjust its capital expenditure to reflect the downturn in business prospects.

The news overshadowed some highly-positive segment growth. For example, its Video Applications, which is Eutelsat’s backbone business and representing 65 per cent of revenues, grew very nicely during Q3 by a very useful 6.1 per cent (although 4.9 per cent when currency fluctuations are taken into account) from €225.3 million to €239.1 million.  Eutelsat’s ever-rising channel count is up 7.1 per cent to 6156, with HDTV channels growing from 672 to 807.

But Eutelsat has been dragged down by a 6.3 per cent decline in Data Services, and flat Government Services revenues. Eutelsat says that the latest round of contract renewals with the US authorities have not gone well, “reflecting a tougher procurement process and strong competition. The re-compete of the majority of the task orders placed five years ago has now been largely completed, with an attendant downward pricing reset”. Eutelsat said they are feeling “downward pricing” on new contracts.

One equity analyst (from investment bank Jefferies) said Eutelsat’s purchase of the Satmex pair of satellites (now called Eutelsat 115 West B and Eutelsat 117 West B) and which were being leant on heavily to drive future growth in terms of fixed data business, were now under pressure. “[They face] the superior economics of high throughput capacity from [rivals], and so are now expected to take far longer to fill (if at all?).”

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