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Eutelsat restructures for tough market

Eutelsat is restructuring its business, cutting capital expenditure and re-assuring the market that it will quickly return to its top-line targets as a result of the fresh strategy. The news emerged from a special ‘Investor Day’ held in Paris early on June 27th.

Eutelsat has suffered these past weeks with a collapse in its share price as a direct result of a profits warning issued in May. Its share price closed on June 24th at €16.86, down from its May 12th position of €27.33.

CEO Rodolphe Belmer says Eutelsat will change in order to reflect the slowing of momentum in the satellite industry and tough headwinds in some key markets. It is already on the process of cutting debt, restructuring loans and such. It will divest certain assets and take on board partners.

“It has become clear in recent months that the traditional businesses within the Fixed Satellite Services sector are facing a context of slowing industry-wide momentum. To face this lower growth environment, we are implementing an adaptation of our strategic priorities and financial objectives,” said Belmer. “Our immediate priority will be to maximise the free-cash-flow generation of our core businesses. We are confident in our ability to generate a level of discretionary free cash flow in the next three years, which will enable us to serve a stable to progressive dividend and reduce leverage, in line with our commitment to our investment grade rating. We will continue to invest selectively to prepare for a return to growth by building on our core Video business and capturing the longer term opportunities in Connectivity. Our objective is to return to broad top line stability as early as FY 2017-18.”

Eutelsat’s first step is to maximise cash-flow in its core business segments (video, data and government/military). Step 2 is to prepare for a return to growth by building on its core Video business and capturing the longer-term potential in Connectivity.

Eutelsat stresses that its core Video business is sound.  “Demand in the Video segment should rise modestly over the next five years. It should see continued growth in emerging markets, in particular MENA and Sub-Saharan Africa where Eutelsat has a strong footprint, notably driven by increasing channel count. The trend in Europe is expected to be broadly stable with HD and Ultra HD ramp-up broadly offsetting improving encoding and compression techniques.”

“Against this backdrop, Eutelsat’s strategy in developed markets will be to optimise value, notably by increasing direct access to customers by integrating or reorganising indirect distribution, stimulating HD and Ultra HD take-up and implementing more segmented pricing strategies.”

“At the same time Eutelsat will continue to capture growth in emerging markets, benefiting from recent investments at the 7/8°West {MENA] and 36°East positions, and investing selectively notably at 7°East.”

Analysts welcomed the news. The first response from equity analysts at Exane/BNP-Paribas was to suggest that the restructuring forecasts were ahead of consensus expectations. A strong suggestion from Eutelsat that dividends would be maintained – or grow – also went down well. “We expect this positive outlook to trigger a positive share price reaction following the recent collapse in the shares,” said Exane.

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