SES slashes dividend

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Karim Michel Sabbagh, President and CEO of satellite operator SES, has described 2017 as “an important year of transformation for SES,” as it reported revenue of €2.035 billion, down 1.6 per cent, declaring a dividend of €0.80 for 2017, a reduction of 40 per cent from 2016, which it says will allow a strengthening of the balance sheet whilst supporting growth opportunities and enabling a progressive dividend in the future.

Reporting his final set of quarterly and full-rear results before stepping down as CEO of SES on April 5th 2018, Sabbagh said: “We have established two market-focused business units, SES Video and SES Networks, and are now well positioned to deliver growth in the future. Business performance was below our expectations as the market remained challenging throughout 2017, compounded by some fleet health issues.”

“We are starting to see the benefits of our investment programme with three new satellites successfully launched in 2017 and another two already launched in 2018. These, along with other planned launches for 2018 and 2019, will bring much needed capacity and customer-specific capabilities to our fleet, particularly in the rapidly growing aeronautical market, that will underpin our future growth. As part of our strategic transformation, we have launched our ‘Fit-for-Growth’ programme that will optimise and focus the allocation of our world-class resources and increase internal efficiencies. As we continue to adapt to the new operating and financial model, and invest in our future growth, we have decided to rebase our dividend, allowing for growth in future years as our business develops.”

“SES Video delivers more channels to more viewers from more premium neighbourhoods than any other operator and, with a backlog of €5.3 billion, our video business is large, profitable and resilient. SES Networks is the only business capable of combining Geostationary, Medium Earth Orbit and innovative ground solutions into compelling solutions for our data-centric customers. We are committed to reinvesting cash generated by our businesses to generate long-term growth, principally focused on SES Networks. Whilst 2018 will still be a year of completing our business transformation, SES expects to deliver growth at attractive margins, as evidenced by the 2020 guidance given today.”

“As has already been announced, Padraig McCarthy and I will be stepping down as CFO and CEO of SES on 5 April 2018. Steve Collar and Andrew Browne (as President & CEO and CFO respectively) have been appointed as our successors and we wish them every success in taking SES forward.”

SES Video revenue of €1.383 billion in FY 2017 was down 3.6 per cent (like-for-like), including Q4 2017 revenue of €351.5 million (-3.0 per cent like-for-like). While Video remains a competitive market environment, the business also had an unusually high impact from satellite health and launch delays, as well as some specific short-term factors at MX1 relating to the non-renewal of certain legacy contracts. In 2018, the implementation of IFRS 15 is expected to lead to a revenue reduction of around €15-20 million related to HD+, with no cash impact.

SES Networks revenue was down 1.9 per cent (like-for-like) at €646.1 million, including €156.1 million of revenue in Q4 2017 (-12.9 per cent like-for-like). The Q4 2017 year-on-year (YOY) decline was primarily related to a significant transponder sale in Mobility in Q4 2016. Mobility was flat year-on-year excluding this transponder sale, with Fixed Data showing a decline of 8.4 per cent and Government up 5.5 per cent. SES Networks grew by 7.4 per cent from Q3 2017 to Q4 2017 at constant FX.

SES Networks is building, resourcing and implementing unique and differentiated data solutions services which are gaining traction with customers around the world. In Q4 2017, SES Networks experienced its strongest quarter of sales, more than doubling its annualised sales volume from Q2 2017. A number of important customer services were also commissioned during Q4, generating new revenue early in 2018.

Overall, SES’s backlog of committed contracts stands at €7.5 billion (2016: €8.1 billion as reported and €7.6 billion at constant FX), flat year-on-year demonstrating that the business is successfully replacing revenue that was delivered over the course of the year. More than 80 per cent of expected 2018 revenue is already committed.

SES’s future growth is enabled by the successful launches of SES-10, SES-11 and SES-15 in 2017, and now SES-14 and SES-16 already in 2018. In the remainder of this year, SES expects to launch SES-12 and an additional four satellites for the O3b constellation which are specifically designed to maximise the MEO advantages for the target customers.

As part of its business transformation, SES is increasingly focused on managing costs to optimise efficiency and growth. In 2017, SES reduced operating expenses by €4.0 million to €710.8 million on a like-for-like basis. This helped support the EBITDA margin, which was 64.9 per cent in Q4 2017 and 65.1 per cent in full year 2017. SES is intensifying its focus on operational efficiency with the roll-out of a company-wide ‘Fit-for-Growth’ programme and anticipates taking a €10-12 million restructuring provision in Q1 2018 to fund planned measures.

Looking ahead, as the businesses continue to scale up their capabilities and identify additional growth opportunities, the revenue mix and margin structure will evolve. SES has updated the guidance and provided enhanced disclosures to improve understanding of the current performance and future prospects. The outlook combines caution for 2018 as SES completes the business transformation with strengthened confidence for meaningful growth in the following two years and beyond. Given the investments that have been made, the future capital expenditure commitments, and the evolving nature of the business model, SES intends to strengthen the balance sheet.

Accordingly, the Board of Directors has proposed to rebase the dividend to a lower level of €0.80 per A class share for 2017, a reduction of 40 per cent from 2016. This rebasing is appropriate for SES and will allow a strengthening of the balance sheet whilst supporting growth opportunities and enabling a progressive dividend in the future.

At December 31st 2017, SES’s fully protected contract backlog was €7.5 billion (31 December 2016: €8.1 billion). Excluding the impact of the change in the EUR/USD FX rate, the contract backlog was in line with the prior year (of €7.6 billion) as new long-term contracts replaced the roll-off from revenue recognised in the period.

This was supported by a strong increase in commercial activity across SES Networks, where the annualised value of new business wins and customer renewals signed in Q4 2017 was double the amount in any of the preceding quarters.


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