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Edited Transcript of ETL.PA earnings conference call or presentation 15-Feb-19 8:00am GMT

Half Year 2019 Eutelsat Communications SA Earnings Call

Paris cedex 15 Feb 20, 2019 (Thomson StreetEvents) -- Edited Transcript of Eutelsat Communications SA earnings conference call or presentation Friday, February 15, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Michel Azibert

Eutelsat Communications S.A. - Deputy CEO and Chief Commercial & Development Officer

* Rodolphe Belmer

Eutelsat Communications S.A. - CEO & Director

* Sandrine Téran

Eutelsat Communications S.A. - CFO & IT Officer

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Conference Call Participants

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* Aleksander Peterc

Societe Generale Cross Asset Research - Equity Analyst

* David Cerdan

Kepler Cheuvreux, Research Division - Equity Research Analyst

* Giles Thorne

Jefferies LLC, Research Division - Equity Analyst

* Laurence Davison

Deutsche Bank AG, Research Division - Research Analyst

* Michael Bishop

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Nicholas Michael Edward Dempsey

Barclays Bank PLC, Research Division - Research Analyst

* Patrick Thomas Wellington

Morgan Stanley, Research Division - MD and Head of the European Media Equity Research

* Paul Sidney

Crédit Suisse AG, Research Division - Research Analyst

* Sami Kassab

Exane BNP Paribas, Research Division - Media Research Director, Co-Head of the European Media Team & Analyst of Media

* Wilton George Fry

RBC Capital Markets, LLC, Research Division - Equity Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the H1 2018-2019 Eutelsat Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Rodolphe Belmer, CEO of Eutelsat. Please go ahead, sir.

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Rodolphe Belmer, Eutelsat Communications S.A. - CEO & Director [2]

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Welcome, and thank you for joining us today for our half year results presentation. I am Rodolphe Belmer, CEO; and I'm joined today by Michel Azibert, Deputy CEO and Chief Commercial Officer of the group; Yohann Leroy, Deputy CEO and Chief Technical Officer; and Sandrine Téran, CFO.

Before we start, a quick reminder that we adopted IFRS 15 and 16 from the 1st of July 2018 and that figures as of the 31st of December 2017 have been restated for IFRS 15 throughout this presentation.

Let's start by taking a quick look at the highlights for the first half. In terms of financial performance, first half revenues for the 5 operating verticals stood at EUR 660 million, down 2.4% on a like-for-like basis. I will return to this. The EBITDA margin stood at 79% at constant currency, comfortably ahead of our objective of above 78% for the full year, this despite the absence of material other revenues and other tailwinds.

Cash CapEx stood at EUR 130 million, well within the EUR 400 million annual average and almost EUR 18 million higher than the exceptionally low level of H1 2018. This more normal CapEx phasing was reflected in H1 discretionary free cash flow, down 30% at constant currency and perimeter to EUR 235 million, but a delta which should not, of course, be extrapolated for the year. Finally, the net debt-to-EBITDA ratio declined from 3.1x -- to 3.1x from 3.3x a year earlier, on our way to deleveraging to below 3x.

Let's take a look now at the progress on our strategic roadmap which, I remind, consists of, first, maximizing cash generation, leveraging all components of cash flow; and second, building the foundations of a return to growth by extracting additional value from the core Video business and capturing the fixed and mobile connectivity opportunity.

First, regarding cash generation. In line with our policy of portfolio rationalization, we ceded our interest in EUTELSAT 25B for EUR 135 million. We successfully refinanced our EUR 800 million January 2019 bond. This will reduce pretax cash interest by an annualized EUR 24 million from fiscal year '20 onwards. We made further progress on our CapEx optimization strategy with a long-term service agreement with Arianespace covering 5 launches through 2027, providing cost-effective, assured access to space with scheduled flexibility; and the procurement of HOTBIRD replacement with highly effective application of the design-to-cost policy.

Our LEAP cost-saving program is comfortably on track to deliver EUR 30 million in OpEx savings this year. Finally, the French Finance Law for 2019 contains a provision specifying the rules relating to the territoriality of corporate tax applicable to satellite operators. It will likely have a significant favorable impact on our tax bill, although it is premature at this stage to assess the level of savings.

We are working to extract more value from our Video business in terms of both returns and revenues. By applying the design-to-cost approach to the replacement of the HOTBIRD constellation, we obtained highly compelling terms for unchanged capacity and enhanced service quality.

Second, the take-up of CIRRUS, our recently launched hybrid satellite OTT delivery solution, has been positive with the first 2 customers already signed up. They each illustrate incremental revenue opportunities delivered by CIRRUS with an upsell with an existing customer, a DTH platform in the Balkans, which has subscribed for the OTT delivery to complement its existing satellite service. The other customer is a greenfield platform for Arabic channels, taking a full satellite OTT hybrid service. We are also pursuing other promising opportunities.

In Europe, following the dissolution of our retail distribution partnership with ViaSat, we are making progress on the overhaul of our standalone distribution strategy focused on selected specialist distribution partners and large telecom operators. In this context, we have launched a Preferred Partner Programme to revitalize the distribution of KA-SAT capacity. Relations with key partners will be strengthened, allowing them to maximize volumes and enhancing their scalability. Gold partners, such as Bigblu Broadband, are on board and generating positive [tickets]. And we recently signed an agreement with MASMOVIL, one of Spain's leading telecom operators, for the distribution of broadband services via satellite to complement their terrestrial network.

Konnect Africa has been launched, and the commercial service is being rolled out. The service is currently available in 19 countries and will gradually be extended. We are in the process of building out our distribution network based on 3 approaches: wholesale deals with telcos and DTH operators, we have started discussions with telecom operators. Local partner network started with -- starting with DRC, we have been building a network of diversified partners operating segments like financial services, hospitality and retail. Our objective is to maximize the number of points of sale and resellers. And in DRC, the Democratic Republic of Congo, this gives us access to around 1,600 points of sales. WiFi hotspots where we have tested the Konnect WiFi model with success, with the commercial rollout due to start soon.

As illustrated with the DRC model, we are developing appropriate pricing strategies, positioning ourselves at levels comparable to wireline and wireless alternatives. Importantly, our model is based on fully prepaid bundles to facilitate cash collection issues.

The unsettled political context in certain countries and, notably, DRC, together with logistical issues typically associated with opening businesses in emerging markets, means -- mean revenues for the current year will be lower than the initial targets. But the main message is that the initial market response is very positive, and we are very excited about the potential revenue opportunity of this business.

Now over to Michel Azibert for a look at the operational performance.

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Michel Azibert, Eutelsat Communications S.A. - Deputy CEO and Chief Commercial & Development Officer [3]

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Thank you, Rodolphe. Good morning. First half revenues amounted to EUR 658 million versus EUR 688 million in H1 '17-'18. They notably reflected a negative perimeter effect of EUR 3 million with the disposal of EUTELSAT 25B, partly offset by the integration of Noorsat last year, a positive currency effect for EUR 3 million, and most importantly, a negative swing in other revenues of minus EUR 15 million, of which minus EUR 9 million related to currency hedging. Excluding other revenues, the revenues of the 5 operating verticals were down by 2.4%.

Let's take a look at revenues by application, starting with the Core businesses. Video, 66% of total revenues, recorded H1 revenues of EUR 432 million, down 2% versus last year. Government Services, 12% of revenues, saw revenues of EUR 82 million, up 2%. Fixed Data, 10% of group total, saw revenues of EUR 66 million, down 12%.

On Connectivity, Fixed Broadband, 6% of revenues, stood at EUR 40 million, a decline of 6% year-on-year. And Mobility, also 6% of revenues, saw revenues of EUR 40 million, up 7%.

Finally, other revenues stood at minus EUR 2 million, which included minus EUR 7 million of negative hedging revenues. There is no extrapolation from this figure given the lumpy nature of this line of revenues.

Let's look at each vertical in more detail, starting with Video. Total Video revenues were down 2% like-for-like. They included a high single-digit decline in Professional Video, a lower contribution from FRANSAT, our French DTT platform. As a reminder, FRANSAT sold peak in card sales during the HD transition in France 2 years ago and is experiencing the decline in related license revenues on a year-on-year basis. Excluding these 2 factors, core broadcast revenues were broadly stable.

At end December, the total channel count stood at 7,067, up 3.8% year-on-year. Excluding the disposal of EUTELSAT 25B, it would have risen 5%. HD penetration continued to increase, standing at 1,500 channels, up 17.6%, with a penetration rate of 21.2% compared to 18.7% a year earlier.

On the commercial front, a multi-transponder contract was signed with 2 Ethiopian broadcasters for video capacity on EUTELSAT 8 West B, including incremental resources. The new multi-year, multi-transponder contract has also been signed with Afghanistan Broadcasting System for capacity on the EUTELSAT 53A satellite. Elsewhere, we will now sell capacity directly to beIN Media, reflecting the direct approach implemented in the MENA region. As previously highlighted, the first contracts have been signed for the CIRRUS platform, and we are working on further DTH opportunities in our pipeline.

Let's take a look at trends on HOTBIRD. Channel count was down 24 units versus last year at the end of December. This reflects the anticipated termination of simulcast channel with a single customer. Over the quarter, the number of MPEG-4 channels rose by 7% to 584. It continues to be outpaced by the ramp-up in HD channels, up 14% to 346. MPEG-4 is still considerably more advanced than HD, with a penetration rate of 60% for MPEG-4 versus 35% for HD channels. As a result of this, the consumption of megabit per second at HOTBIRD was up 4% year-on-year.

Government Services revenues stood at EUR 82 million, up 1.7% year-on-year. This reflected, on the one hand, incremental business secured last year over Asia Pacific at the 174° East orbital position and, on the other hand, lower-than-expected renewals with the U.S. Government in the fall 2018 campaign, which, as a reminder, were not reflective of underlying market trends.

Revenues for Fixed Data stood at EUR 66 million in the first half, down 12% year-on-year. The performance continues to reflect ongoing pricing pressure and the highly competitive environment, with Latin America the main contributor to revenue decline. On the commercial front, a framework agreement was signed with Orange. It incorporates a material multi-transponder renewal, which secures business on a multiyear basis and sets the stage for potential incremental business in Fixed Data, Government Services and Mobile Connectivity with this customer.

Fixed Broadband revenues stood at EUR 40 million, down 5.8% year-on-year. This reflects the expiry of a contract for a spotbeam on EUTELSAT 3B, which was re-contracted to Taqnia in Mobile Connectivity, and this accounts for a circa 1/3 of the decline. And then lower revenues in European Broadband in the context of scarcity of capacity in certain Western Europe countries. As previously mentioned, H1 saw the launch of Konnect Africa broadband service and the implementation of the new self-managed distribution strategy in Europe. This should lead to an improvement in the second half.

Turning to Mobile Connectivity. First half revenues were up almost 7% year-on-year, reflecting the new contract in July with Taqnia at 3° East and 70° East, the entry into service of EUTELSAT 172B at end November 2017 and the ongoing ramp-up of capacity contracts on KA-SAT for Cairo. On the commercial front, a multi-transponder contract was signed with a leading service provider on multiple satellites for capacity dedicated to maritime connectivity. This illustrates the potential opportunities in maritime, which is a relatively new market for us.

Turning to the fill rate and backlog. The number of operational transponders at end December stood at 1,419, down 8 units versus in June, reflecting principally the disposal of EUTELSAT 25B. The number of leased transponders was broadly stable versus end June, with EUTELSAT 25B and the negative outcome of the Government Services for renewals being compensated by new business with Orange Slovensko and the Ethiopian broadcasters as well as the ramp-up at 174° East.

As a result, the fill rate stood at 68.3% compared to 67% a year earlier and 68.1% at end June. The backlog stood at EUR 4.6 billion at end December versus EUR 4.7 billion a year earlier and EUR 4.6 billion at the end of June. It was equivalent to 3.3x the revenues of 2017-'18. Compared to end June, the backlog was stable with the inclusion of the commitments from Orange and Thales on KONNECT VHTS, offsetting the perimeter effect related to EUTELSAT 25B and the adoption of IFRS 15 as well as natural backlog consumption. This mostly explains the dilution in the Video proportion of the backlog to 77%.

Now over to Sandrine for the financial performance.

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Sandrine Téran, Eutelsat Communications S.A. - CFO & IT Officer [4]

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Thank you, Michel, and good morning, everyone. Starting with profitability. EBITDA stood at EUR 518 million for the first half, down by 5%. The EBITDA margin was robust at 79% at constant currency, comfortably above our full year target of above 78%, illustrating our successful OpEx containment policy. This performance was achieved despite lower other revenues, which typically come with a higher margin; kickoff costs related to the Konnect Africa project; as well as the dilutive effect of changes in perimeter. The LEAP program is progressing in line with expectations and is well on track to deliver its EUR 30 million target for the full year.

Group share of net income stood at EUR 150 million versus EUR 158 million a year earlier, down 4.8%. The net margin stood at 23% and was stable. It reflected mainly a lower EBITDA; other operating income of plus EUR 36 million, reflecting principally the capital gain on the disposal of EUTELSAT 25B; a tax rate of 35% compared to 27% last year, which included notably the tax on the previously mentioned capital gain for EUR 18 million.

Elsewhere, depreciation and amortization stood at EUR 258 million, broadly stable compared to last year, with the impacts of the entry into service of EUTELSAT 172B and the implementation of IFRS 16 almost offset by the impact of the disposal of EUTELSAT 25B. The net financial result stood at minus EUR 53 million versus minus EUR 56 million a year earlier, mainly reflecting the evolution of foreign exchange gains and losses.

Net cash flow from operating activities amounted to EUR 379 million, down EUR 22 million year-on-year at constant currency and perimeter as a result of lower EBITDA, a more favorable change in working capital than last year and higher tax paid.

Cash CapEx amounted to EUR 130 million, fully consistent with expectations. As a reminder, last year's cash CapEx in the first half stood at just EUR 53 million, a result which was not representative of the full year.

Net interest amounted to EUR 24 million versus EUR 21 million last year. And as a result, the discretionary free cash flow amounted to EUR 225 million or EUR 235 million at constant currency and perimeter, down EUR 102 million or minus 30% like-for-like, mainly reflecting the phasing of CapEx. As Rodolphe mentioned earlier, it should not be extrapolated for the year as a whole.

At end December 2018, net debt stood at EUR 3,304,000,000, up by only EUR 63 million versus end June despite the dividend payment. On the positive side, it reflects the discretionary free cash flow of EUR 225 million, half of the configuration for EUTELSAT 25B represented EUR 68 million, with the remainder due in next fiscal year. And on the negative, the dividend payment of EUR 311 million, which includes dividends paid to minority interest as well as the impact of the implementation of IFRS 16, which adds EUR 44 million to net debt. As a result, the net debt-to-EBITDA ratio stood at 3.1x, an improvement on the end December 2017 result of 3.3x.

When we stated from the repayment of the EUR 800 million bond in January 2019, the average cost of debt was reduced to 2.2% compared to 2.9% in the first half last year. The weighted average maturity of the group's debt stood at 3.4 years compared to 2.5 years at end December 2017. Elsewhere, liquidity remained strong at end December, with cash of EUR 677 million on top of the EUR 800 million earmarked for the redemption of the January 2019 bond and undrawn credit line of EUR 650 million.

Before handing back to Rodolphe, a quick reminder of the progress on all components of cash generation with the launch of the June 2016 strategic plan.

On cash CapEx, we have reduced the annual average spend from EUR 500 million to EUR 400 million with 0 impact on the deployment plan, thanks notably to the implementation of highly effective design-to-cost approach. On the OpEx side, the LEAP plan is designed to reduce external cost by 20% or EUR 30 million. We already delivered EUR 24 million in savings in fiscal year '18 and are comfortably on track to reach our full target this year.

Thanks to 2 successful refinancing loans, we have secured a reduction in cash interest of over EUR 50 million. Cash interest was reduced by EUR 26 million in fiscal year '18 compared to fiscal year '16, and we will materialize a further EUR 24 million in savings in fiscal year '20.

We have generated circa EUR 600 million via the disposal of noncore assets, notably our minority stake in EUTELSAT 25B and Hispasat. Moreover, these have been executed at an average EBITDA multiple of almost 9x, well above the 7x implied by our current share price.

And finally, as Rodolphe mentioned earlier, we are making headway on reducing our corporate tax with the new Finance Law paving the way for release in 2019.

Now back to Rodolphe to speak on the outlook.

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Rodolphe Belmer, Eutelsat Communications S.A. - CEO & Director [5]

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Thank you, Sandrine. As we stated at the outset of the year, the revenue profile is set to be back-end loaded to the second half, reflecting the following factors: in Video, the gradual phasing out of the FRANSAT headwind, which represents circa EUR 1 million per quarter; new contracts with Ethiopian broadcasters, Orange Slovensko and African -- Afghanistan Broadcasting Systems with a full semester contribution in the second half; an increase in direct sales in MENA with higher prices.

In Fixed Broadband, Konnect Africa ramp-up and the recent initiatives in Europe. And Mobile Connectivity will benefit from the contribution of China Unicom from the 1st of January 2019 as well as initial revenues from the new multi-transponder contract in maritime. And of course, we have further business in the pipeline in several applications.

Turning to the outlook. With the first half figures broadly in line with our expectations at this stage of the year and the tailwinds I just mentioned in the second half, we are in a position to confirm our expectation of broadly stable revenues for the 5 operating verticals for the current year at constant currency and perimeter. We continue to expect a return to slight growth from fiscal year '20 onwards. All the other financial targets, notably EBITDA margin and discretionary free cash flow, are also confirmed.

A few words to conclude. In the first half, we took several important measures to boost cash generation, including the successful bond issue and further asset disposals. We made progress on the longer-term components of our performance in both Video and Connectivity. While the revenue profile of Konnect Africa may be pushed out due to external and minor logistical factors, our assessment of the significant potential of this market remains intact. We continue to deliver on profitability with a 79% EBITDA margin, despite lower revenues and other dilutive impacts. And the cash flow measures executed in H1 as well as the potential benefit of new finance law mean we are equally confident in our ability to achieve or exceed our discretionary free cash flow objective.

I thank you for your attention, and we are now ready to take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We will take our first question from Aleksander Peterc of Societe Generale.

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Aleksander Peterc, Societe Generale Cross Asset Research - Equity Analyst [2]

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I would actually have just 3. There will be one on Video, one on Mobility and one just general. So first on Video, you said it was just flat quarter-on-quarter. And I thought you had Orange Slovensko already contributing. Is that correct? And what is offsetting that? Is professional services worsening or is perhaps the FRANSAT headwind stronger? And could you actually quantify that FRANSAT impact for us? And I also see the year-end trend deteriorating for the third quarter in a row now. We're now at minus 2.4% year-on-year. You do have a slightly higher base in the year-ago quarter, but still, we have this negative trend. So how is the rest of the year shaping out? Are we still in a position to hope for a flat or close to flat year in Video this year? Then secondly, on Mobility, could you explain what is behind the quarter-on-quarter decline here? And this is also the first quarter we actually don't see double-digit growth in this division. So I'd like to know what dropped off. I thought you had some benefit of the ramp-up of capacity contracts on KA-SAT and some tailwind from Taqnia. So I'm not sure why we have such weak year-on-year growth in Mobility. And then just general, you seem to indicate that the Konnect Africa contribution will be lower this year. So what is offsetting that so that you can reiterate your guidance of broadly flat revenue, bearing in mind that it seems to me consensus is modeling a mild decline of about 0.5 percentage point? So what's offsetting this shortfall at Konnect Africa?

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Rodolphe Belmer, Eutelsat Communications S.A. - CEO & Director [3]

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Thank you, Aleksander, for all those questions. In the Video segment, we -- our view is that the revenues of this year will be stable to slightly growing over the -- in total and more specifically over the first -- the second half of the year. Why? Because well, we have incremental revenues coming from different sources, as we said, new contracts which will materialize and have full impact during the second semester in Ethiopia, Afghanistan, Orange Slovensko, which had only a minor effect during the first half; and also prices and demand in volume, which is well oriented in the MENA region; and on the sort of fading away of the impact on the drag imposed by FRANSAT. We said that this drag was worth around EUR 1 million each quarter, and it's going to progressively wash out over the course -- during the second half. And that's why we -- our view and what we are -- our plans that the second half will be positive for the Video segment. I will say, to give a bit more precision and more color on the Video segment, that even though the Video segment, as a whole, has turned to be slightly negative in the first half with around minus 2%, it comes mostly from the professional Video segment and from FRANSAT. The Broadcast segment, which is the main important segment for the Video and the many important segment for the valuation of our company representing 90% of the revenue of that segment, is broadly stable. And we insist on that because we know that it's very important for the future view on our company. In Mobility, there is a Q-on-Q decline over the first half. First, I would say that it's -- well, it's a decline in percentage point. But in absolute terms, the figure at stake is very, very low, very, very limited. And what's behind that? Well, some elements that I can bring. First element, we -- there is some seasonality in that segment and notably due to the consumption on a pay-per-use basis on KA-SAT and the fact that the summer period has heavier traffic for airline. And second, we don't have new contracts coming in line during this second quarter, which explains this slight Q-on-Q decline. Of course, you shouldn't expect that for the following -- for the rest of the year. Why? We have important contracts coming online and materializing during the course of the second half. First, there is the contract that we mentioned already, which is substantial with China Unicom, which is having effect and an impact on our revenues as of January 1. And second, there is an important contract that we have been able to ink in the maritime segment. We are not allowed to disclose the name of the customer, but it's a very sizable contract in the maritime segment. And I insist on that because, well, it's a relatively new domain for us. We have been relatively absent from the maritime segment, and this is very important to win in that segment. It's a positive news in our view. Konnect Africa, we have sort of (inaudible) feeling on this -- in that initiative. First, we are very excited by the business potential in Africa. The response we have from the marketplace and from the distributors are very encouraging. In many countries, DRC, [Argoricos], Nigeria, there are lots of excitement over there. Certain that while this business potential comes in Africa with executional difficulties, which tend to slow up the ramp-up of that business, meaning that we're a bit more prudent on the outcome of the year in terms of revenues in that segment, this is absorbed in the -- in our financial guidance. Of course, it is taken into consideration in our guidance. But that's what I can think -- I can say on that respect.

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Operator [4]

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We will take our next question from Paul Sidney of Crédit Suisse.

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Paul Sidney, Crédit Suisse AG, Research Division - Research Analyst [5]

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I just had a couple of questions around the same topic, really, on your growth. I mean, clearly, if you look at H1, it was down 2.4%, I think, excluding other revenues. You're clearly guiding H2 much better. I was just wondering if you could give us any confidence in terms of what you've seen in the first sort of 6 weeks of the year in terms of revenues coming from these new contracts just to sort of reassure us that you are seeing the revenues come through, as you would expect, to see that strong H2 rebound. And then maybe just following on from that, a second question, sort of big picture. It looks like quite a pivotal quarter for you, Q2. And that, obviously, the revenue trends have been getting slightly worse into Q2. And now, you're sort of signaling they'll start to get better. I mean, are you really signaling the inflection point now to your revenues and we can look forward to those revenue trends getting better for the next few quarters and, indeed, the next few years?

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Rodolphe Belmer, Eutelsat Communications S.A. - CEO & Director [6]

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Thank you, Paul, for your questions. Well, we maintain that our view is that our revenue trajectory for the fiscal year as a whole will be broadly stable, even though the first half was at minus 2.4%, which is broadly in line with our expectations, and the buildup of the revenues -- of our revenues during the course of the fiscal year that we had in our internal figures. And why do we think that H2 will be better and will have a more positive trajectory? Well, first, I would say that, well, in the Video segment, we will have a stable to slightly growing second part of the year. We mentioned some contracts that we have signed recently for Orange Slovensko, but also a new contract that we announced last week in Ethiopia with Ethiopian broadcasters, in Afghanistan with Afghanistan Broadcasting System. And also the fact that it's more progressive, but we are able to increase price in MENA, in the Middle Eastern region, at the 7-network positions, following our new distribution approach and our shift to direct selling in that region. Also, well, the demand in volume is well oriented in that region. We announced recently -- well, you wanted some colors on some contracts. I will remind you that we announced recently a contract with TRT Arabi and with new channel -- with a new NBC channel for Iraq. Another element of improvement that we will have in the Video segment in the second half is the washout of the FRANSAT headwind, which is worth around EUR 1 million per quarter, EUR 2 million for the half. And there is also the positive dynamics at 28° East, which is our position for the U.K. In the Fixed Broadband, we expect a return to growth in the second half with the ramp-up of Konnect Africa that you know and the improved trends in the European Broadband on the back of our new distribution strategy. We signed our first PPP contract, privilege partnership contract with Bigblu Broadband in Europe. And the first results of this PPP contract that we signed only 6 weeks ago, I think, are very encouraging, very promising, I must say. And it shows that our new overhauled distribution strategy in Europe, around our 2-pronged approach, telcos, on the one hand, and specialized distributors that we revitalized, on the second hand, seems to bear positive fruit. In Mobility, growth will reaccelerate in the second half on the back of 2 big contracts: China Unicom that you know already, and the contract that we signed in the maritime segment. Unfortunately, I'm not able -- I'm not allowed by the customer to disclose the name. But it's a substantial -- it's a blue-chip customer and a substantial contract. And we have also a whole set of undisclosed contracts in the pipeline in all the applications, which gives us the confidence that our second half will be better than the first one, will be positive and will end up -- will enable us to end up to land our full fiscal year in the broadly stable range. I think that's for the -- well, I've been as comprehensive as I could to answer your question, Paul.

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Paul Sidney, Crédit Suisse AG, Research Division - Research Analyst [7]

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Yes. Maybe just to -- sorry to labor the point, Rodolphe, but is what you've seen in the first 6 weeks of the year, is that consistent with how you see the second half playing out?

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Rodolphe Belmer, Eutelsat Communications S.A. - CEO & Director [8]

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Yes, exactly. That's what I meant. What I said first is, well, in broadband, which is an important segment in our return to growth, and we focus lots of energy to prepare ourselves for the launch of the HTS and VHTS satellites that are coming online in the next few quarters or years, we are focused on rolling out effective commercial strategies and marketing strategies, commercial net -- developing commercial networks, preparing the partnerships to sustain our ability to accelerate in that segment. And what I say is that -- and what I said, and maybe I can bring more clarity on that is that, in Europe, over the first 6 weeks of the year, we have seen positive results and very encouraging takeoff of our PPP, the new distribution strategy. In Africa also, despite executional difficulties associated with developing business in that continent, we are seeing also very encouraging early response of the market, notably Nigeria. And in Congo, in DRC, at the first 6 weeks of the year or the first, yes, the 6 weeks of the year, of the civil year, I will confirm that.

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Operator [9]

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We will take our next question from Laurie Davison of Deutsche Bank.

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Laurence Davison, Deutsche Bank AG, Research Division - Research Analyst [10]

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First question on the -- you're giving -- you're stating that the simulcast cuts on HOTBIRD is a one-off. Why is simulcast channels being cut a one-off? Surely, these are going to reoccur as on-demand options become more prevalent. Second question, can we get the revenue performance for HOTBIRD over the second quarter and in the first half? And on the third quarter, you're saying direct selling in MENA will give you better pricing. Can you update us with how your direct sales went in Europe? We haven't heard much about this. Did you achieve revenue uplift?

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Rodolphe Belmer, Eutelsat Communications S.A. - CEO & Director [11]

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Thank you, Laurie, for all those questions. On the HOTBIRD, I would say that I can give you a very positive feeling. We have a very positive feeling. And we think that the business of HOTBIRD is very solid. What we said that the demand in volume of megabits is growing on HOTBIRD, and it has grown by 4% over the first half, which is a very positive signal despite the fact that the number of channels has slightly come down by, I think, it's 20, in the order of 20, because some channels have migrated from SD to HD, which means that the number, in terms of channel count, is slightly reducing, whereas the demand in volume is very solid, very buoyant. Pricing-wise, HOTBIRD is well-oriented. And thanks to our new distribution approach and our new red card, we have been able to stabilize, and it's a very important point, I'd like to insist on that, stabilize price on HOTBIRD. If you exclude the promotions that we are making to accelerate HD, and in which we are very successful, price are well-oriented on HOTBIRD and it's a very important factor. We are able to renew contracts in favorable terms on HOTBIRD, which shows how important is this infrastructure for our customers. In terms of revenue performance for HOTBIRD as a whole, we don't really communicate on that normally. But I could say that for the -- during the first half, our revenues on the HOTBIRD were well-oriented and exactly in line with our expectation and very, very, very solid. In MENA, we bought out our main distributor, which is called Noorsat, in the region 18 months ago. And the result of this acquisition has been positive to us. It has enabled us to roll out our own self-managed distribution strategy in MENA, stimulating demand, concentrating on first-year customers that we're able to attract to our position, like beIN Media Group, for instance, with which we have direct contract and relationship now, a big blue-chip customer. And we have been able also to increase price in the region, which again shows how important it is to control our own distribution and how demanded and necessary are our infrastructure to sustain the stability or the development of the television markets in the different regions of the world.

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Laurence Davison, Deutsche Bank AG, Research Division - Research Analyst [12]

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Sorry, just come back on that, Rodolphe. What does well-orientated mean? I mean, I understand you don't want to give a specific number for HOTBIRD, but why did revenues actually grow in the first half? And secondly, leading comms were broadly stable in the first half.

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Rodolphe Belmer, Eutelsat Communications S.A. - CEO & Director [13]

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So they were broadly stable -- broadly stable, yes. Yes.

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Laurence Davison, Deutsche Bank AG, Research Division - Research Analyst [14]

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And in MENA, I understand what you're saying there about the new pricing policy. But my question was, did you see revenue uplift when you went to direct sales in Europe? Because 2 years ago, you started that strategy and we haven't heard back whether that worked.

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Rodolphe Belmer, Eutelsat Communications S.A. - CEO & Director [15]

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No. Well, I understand that you are pushing on that question, which is a very important question. You will remind that a few quarters or years ago, HOTBIRD was in decline. We had to purge the capacity, which came with a substantial impact on the revenue at HOTBIRD. We have been able -- well, we have changed and overhauled our distribution strategy in Europe. We have adopted a new red card based on a per-megabits basis instead of a per-mega or per-transponder approach. And the impact of all that has been positive. We have been able to accelerate HD development. We have been able to implement this new price card in Europe. And as a result, we have been able to stabilize the revenue of HOTBIRD this year, at least during the first half, which was the figure we are commenting -- which is a figure we are commenting now. I said it's -- we have been able to perform broadly stable at HOTBIRD during the first half, which we see as a good news given where we are coming from.

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Laurence Davison, Deutsche Bank AG, Research Division - Research Analyst [16]

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But if volumes are up 4% and revenues are broadly flat, then pricing has gone backwards, not up.

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Rodolphe Belmer, Eutelsat Communications S.A. - CEO & Director [17]

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Well, I specified and I was cautious in saying that if you exclude the promotions we make to accelerate HD, pricing are well-oriented. What does it mean? It means that, as you know very well, we are in the process of accelerating HD in Europe because we think it's very important to sustain the demand in volume over the long run. To do that, we make some promotions to accelerate the migration from SD to HD. And of course, it comes, this promotion, with special tariffs, special conditions that we accept to make, to concede, to stimulate that migration. Obviously, these promotional prices are not a reflection of the long-term contract that we take and that we are able to ink with our customers. If you exclude those promotions, which are minor but they still have an effect on our average price, as you have noticed very well, if you exclude that, our pricing are well oriented, which is the KPI on which you should focus. The contract we have with our customers after the promotional period and the pricing are stable to growing.

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Operator [18]

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We will take our next question from Michael Bishop of Goldman Sachs.

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Michael Bishop, Goldman Sachs Group Inc., Research Division - Equity Analyst [19]

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Just a couple of questions from me, please. Firstly, just picking back up on the slightly weaker language around Africa and broadband. I think originally you said that could contribute EUR 10 million this year. So do you have an updated figure? And then secondly, I'm struggling slightly to see what's actually changed because, I guess, from a satellite industry perspective, it's always been quite difficult driving penetration in Africa, given the issues of installation, ARPU, et cetera. So what's actually different this time around versus your expectations? And then if I could just follow up on Video, just 2 quick questions. On the HD promotions, I mean, are they going to continue for quite a while? I think you said previously the average duration was 2 years. But presumably, you're constantly renewing promotions for different customers. So could you give us an idea on when this might stop being such a headwind? And then secondly, on Video and the new contracts that you've signed in Ethiopia and Afghanistan and then also the new contracts which you expect to sign, could you give us an indication of the overall size of pricing or even just total contract amount? Because it's quite hard to picture this recovery without knowing the size of the contracts.

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Rodolphe Belmer, Eutelsat Communications S.A. - CEO & Director [20]

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Thank you, Michael. I will answer your 2 first questions, and Michel Azibert will take the third one. In Africa, well, until now in -- well, we have been performing very well in Africa where we are a market leader in the Video segment. We are now entering a new segment, which is the broadband segment, which comes with a specificity which we don't find in the Video segment. And when we meant logistical issues, we have to import terminals in -- for the -- in the broadband segment to sustain the broadband business. And it creates some logistical difficulties in some countries in Africa. Well, they are behind us, but it took more time than we anticipated. And second, it comes with specific licenses that you have to get to operate as an IP, as an Internet provider or as a telecom distributor in different African countries. Those kind of obligations, we don't have in the television segment, which means it's a relatively new, well, new obligations that we have to overcome. It's behind us also in many cases, but it took a bit more time than we anticipated. And that's the reason why in the broad and Fixed Broadband segments, the revenues are oriented the way they are. In terms of what's the revenue that we're expecting from the African broadband unit this year, we -- normally, we don't -- and I think we don't disclose specific figures for specific sub-business lines. We said a few years ago when -- it was a long time ago, about 3 years ago, when the AMOS satellite has launched, incidentally was destroyed during the launch phase, that we were expecting around EUR 50 million of revenue for the African broadband initiative, which was actually impacted by this launch failure. We have not really visited the potential of the business in Africa, in our view. We maintain that the revenues we should expect from this continent in the broadband segment are pretty substantial. The only thing is that we say that we should consider a figure which was a bit below EUR 10 million in the first year. We are a bit below that for this fiscal year due to the lower -- slower-than-expected ramp-up that I mentioned previously. But well, it's taken into consideration in the broadly stable financial objectives that we set for the total group for this entire fiscal year. HD promotions, how long are they going to last? What I said is that when we concede some promotional tariffs for specific customer to stimulate the migration from SD to HD, we can end up giving 2 years of special tariffs to the specific customers to migrate. It can be below that, of course, it can be shorter, but it can be up to 2 years of special tariff. And after 2 years, they are back to the normal contract, back to the normal price and to the new red card that we have been enforcing in Europe. How are we going to do to make those promotions? You know that our objective is to reach 50% penetration of HD on HOTBIRD, 40% across our fleet in 2 years' time from now. We're well on track to achieve that and -- but it means continuing to roll out promotional efforts to stimulate that adoption of HD, meaning that we're continuing to make that effort because we think it's for the good of the fill rate of our satellites and for the good of the demand in volume for the long term and for the good of our pricing power, of course. And you will note in that respect that we have mentioned that the consumption in volume at HOTBIRD is growing. It's also true for the total fleet in the Video segment. And it's also reflected in the fill rates of our satellites, which is well oriented since our fill rate has been slightly growing and we are at sort of inflection point in that respect. I'm now turning to Michel to answer your questions.

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Michel Azibert, Eutelsat Communications S.A. - Deputy CEO and Chief Commercial & Development Officer [21]

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Yes. For the specifics of the contract, so the Ethiopian contract is coming -- it's a multiyear contract for, let's say, basically, I would say 2.5 transponders. It comes with a ramp-up. It will generate something like between EUR 2 million and EUR 3 million or maybe slightly more for the full year for next year, and this year, it comes with a ramp-up. So this is the order of magnitude. It's very important strategically because it positions Eutelsat as the hotspot for Ethiopia, where it was heavily challenged. And now we have booked, in fact, all the customers for quite some time, so it's becoming the hotspot. For the same position 8° West, we have on the beIN, which is basically an increase in price because it was already an indirect customer. I should mention for these 2 contracts, beIN and Ethiopia, that we have to vacate the capacity a little bit ahead of time, which partly explains the evolution Q1, Q2 for Video. We have a couple of months with empty capacity on 8° West, which otherwise is 100% full or 98% full. So that will vanish. This effect will vanish in H2, and it's good for the future. Regarding Afghanistan, it's about 2 transponders for a platform with a ramp-up, starting free to air. And the range of magnitude of the contract on a full year basis for next year is in the range of EUR 2 million. And you mentioned the new -- other contracts in the pipeline, of course, we cannot disclose. I would say there are in other geographies than MENA, and that would be, of course, contracts with a ramp-up. We have 2 or 3 (inaudible) [elites] in the pipeline that we hope to conclude in the next few months.

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Operator [22]

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We will take our next question from Nick Dempsey of Barclays.

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Nicholas Michael Edward Dempsey, Barclays Bank PLC, Research Division - Research Analyst [23]

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So just on Video then. Q3, could that still be negative if the FRANSAT drag is washing out gradually and given what Michel Azibert just told us about the ramp of those other contracts? So for the second half, are we looking at down selling in Q3 for Video but then reasonable growth in Q4? And my second question -- so we've got EUR 7 million of negative hedging contribution in other in the first half. If you weren't doing that hedging, would your revenues, excluding other, be lower due to an FX effect? Or how's that working?

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Rodolphe Belmer, Eutelsat Communications S.A. - CEO & Director [24]

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Thank you, Nick. Well, as you know as well as I do, we don't give guidance per application per quarter. The only thing I can reiterate, and I'm sorry for that, that, well, Video will be stable to slightly growing in the second half. And I think we have given to you a lot of substance and indications to sustain that figure and that statement. In the other applications, maybe I will turn to Sandrine to -- Sandrine Téran to answer your question.

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Sandrine Téran, Eutelsat Communications S.A. - CFO & IT Officer [25]

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Yes, Nick. So as you just mentioned, we have negative in the other revenues on the reported basis, minus EUR 7 million, which is due to the reset of hedging. Maybe I will remind what we are doing in terms of hedging. Nonlegal entities, which are using a functional currency in euros and one of the revenues in U.S. dollar, we are hedging the net cash flow exposure of such entity. In order to do so, we are entering into mostly -- I would say into forward (inaudible) instrument. But because as you know, they protect us against depreciation while we can still benefit from potential appreciation of the U.S. dollar. What happened in H1 is that in the context of the steep depreciation of the U.S. dollar, we were outside of the corridor of these instruments, which means that the hedging is negative, the result is negative because the strike price was significantly higher than the actual exchange rate. So we booked this in other revenues, and we always did that. So on a reported basis, we have minus EUR 7 million due to hedging in other. Without this impact, we would have positive others by an amount of EUR 5 million.

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Nicholas Michael Edward Dempsey, Barclays Bank PLC, Research Division - Research Analyst [26]

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If I could just -- sorry, I could just follow up. Just to confirm, the -- there's no effect of the hedging on the -- it's not like you're getting a positive effect from the hedging on the other -- on the operational revenues and then a negative effect from hedging in other. It's the negative effect in other relates to cash flow, et cetera, and has no bearing on the reported revenues of the operating effect. Is that fair?

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Sandrine Téran, Eutelsat Communications S.A. - CFO & IT Officer [27]

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Yes, that's true. That's true. The reason have been -- is only in the underlying, yes.

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Rodolphe Belmer, Eutelsat Communications S.A. - CEO & Director [28]

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Yes. And maybe -- thank you, Sandrine, for this answer. Maybe I would like to add some words on the other revenues. Even though they are not part anymore of our guidance, we have excluded them -- we excluded them a year ago because they are very lumpy in nature. You will recall that last year, at the fourth quarter, we recorded other revenues in the magnitude of EUR 30 million for the quarter, which was very significant. And it's true that this first part of the year has been marked by a low level of other revenues, which shouldn't be extrapolated for the rest of the year. And I can say that we have just signed a very important piece of contract, of engineering contract, recently, which is substantial and which will bring substantial revenue to these other revenue lines and that you will see further, when we are communicating on the third quarter revenues of the company, which confirms, by the way, that the nature of these revenues are -- is very lumpy, and we have been right in excluding them from our financial objectives a year ago.

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Operator [29]

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(Operator Instructions) We will take our next question from Wilton Fry of Royal Bank of Canada.

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Wilton George Fry, RBC Capital Markets, LLC, Research Division - Equity Analyst [30]

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Yes. Mature receivables, more than 3 months old, stood at EUR 169 million. That's 12.5% of group revenue, and that's not really a sign of a company running the business to generate cash. I also see the provision for bad debt has jumped and that's to its highest level ever since you IPO-ed more than 13 years ago now. It's actually 3x higher than it was 5 years ago. I'm just wondering, which of your customers aren't paying or having trouble paying?

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Rodolphe Belmer, Eutelsat Communications S.A. - CEO & Director [31]

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Well, certainly, we'll [admit] to answer on that, but maybe I will take some time to answer broadly on your question. We are generating lots of cash flow, as you know. And our cash flow performance has been -- I would say it's not very humble to say that it's quite impressive, since we have almost doubled our cash flow production in less than 3 years, which has enabled us to sustain a very solid dividend policy, which is quite distinctive, I would say, in that industry. When it comes to receivables and cash collections, we are completely focused on that. As you know very well, we are focused on each single building block of the cash flow production, and we try to optimize our performance and maximize our performance in each and every of the line, interest rates, tax, all those elements, OpEx, CapEx and also working capital. The entire company is focused on that, including the sales force. If you look at the receivables, the receivables are -- as a word, they are stable, and the bad debt is also stable. And there is an evolution in the receivables. It's a very specific segment of the receivables, which is receivables above 3 months, which have been increasing, as you have noted, and Sandrine is going to explain that. But it's a very, very minor element of our cash flow production structure.

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Sandrine Téran, Eutelsat Communications S.A. - CFO & IT Officer [32]

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Yes. Thank you, Rodolphe. On the specifics of H1 and the receivables and the bad debt provision, so I would highlight that, first, the total receivables has decreased as compared to a year ago. Second, I would also highlight that if you look at the performance in term of cash flows, because I think it's the interesting question, that you have the change in working capital on this half year has been more favorable than the one a year ago. So the performance in terms of cash collection is satisfactory and even better than a year ago. As far as the receivable above 3 months, so you are right, they are increasing from the EUR 150 million approximately a year ago to EUR 170 million this year. But it's a gross amount. And what really matters is what is the net exposure, so after allowance or after bad debt provision, which remains at EUR 80 million. So it has of the amount that you mentioned, so I think that's the figure that you need to look at precisely. And of course, we have a lot of instruments to mitigate the credit risk, like the guarantees. We have something like EUR 50 million of guarantees received from the customers and from credit risk insurance. And maybe your last piece of answer on the bad debt specifically, it's right that it's slightly above the average of the last half year. But it's important to know, and I want to share that with you, is that on the specific on this semester, we have actually received significant payments in January, so right after the December 31. And actually, if you restate the bad debt based on this payment, then the bad debt would have been lower in total year, aligned with the bad debt that we are used to book for the semester. So I hope it gives you more comfort on our performance in terms of cash collection.

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Wilton George Fry, RBC Capital Markets, LLC, Research Division - Equity Analyst [33]

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I would say you seem to suggest it's a minor issue, but I'm actually quite worried about the structural increase in it. Just looking at all your reference documents. The provision for bad debt, so the actual balance sheet measure, just gone from, 2013 reference, EUR 34 million to EUR 46 million to EUR 60 million to EUR 71 million to EUR 60 million to EUR 83 million, and it's now standing at EUR 101 million. It sounds as if the provision for bad debt is actually getting worse as we continue. At the same time, we've seen this persistent, anemic demand. You've seen utilization very low. I'm just wondering whether we're sort of missed -- we're still trying to paint over a structural problem with a reasoning that it seems to be a timing issue because it does look very much as if it's a structural issue. I just wondered if you could comment on that.

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Rodolphe Belmer, Eutelsat Communications S.A. - CEO & Director [34]

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Well, maybe we will answer in 2 times, and I will be helped by Sandrine. The fact is that when you look at the debt policy of the group, that's a figure that is very explicit and self-explanatory. This -- well, the cash flow collection is growing substantially and, I would say, impressively. The working capital is well controlled. Receivable are well controlled. When it comes to bad debt, and you are referring to an evolution over the long period of time and the evolution of bad debt of the group, it's affected. If you take a 10-year period as a reference, it's affected, of course, by the exposure, the progressive and the growing exposure of the group in the emerging markets, and it's sort of natural consequence. And it's also the reason why our revenue profile is different from our competitors. It's better because we are exposed in regions where there are -- there is substantial and solid demand for satellite connectivity and satellite capacity, which is good actually. The fact is that, of course, we have (inaudible) that into consideration in the way we contractualize with a contract with our customers in the emerging markets. And we protect ourselves by provisioning very prudently and by deploying the appropriate instruments of cash collection to protect ourselves, guarantees and all those kinds of bank guarantees, parent company guarantees, all that kind of instruments that are well suited to companies doing business in that kind -- in those kind of ranges. That's for the answer in principle, and maybe Sandrine can help in with more acuity.

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Sandrine Téran, Eutelsat Communications S.A. - CFO & IT Officer [35]

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No, I think that's -- I have not much to hide. I think there is no -- I'm not saying it's not an area of focus of the management at all, Wilton. That's not what I wanted to say. This is an area of focus. It's completely explained by the profile of our customers and the exposure to emerging market, as Rodolphe just said. I think we have a cautious way to book bad debt provisions. So this is why I insist on the fact that we should look at the amount, first, allowance. And when you look at the evolution of the bad debt over time, once again, it's stable, I would say, over the last 3 years, knowing that our exposure to emerging markets significantly increased in 2015 or approximately around this period of time.

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Operator [36]

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Our next question comes from Patrick Wellington of Morgan Stanley.

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Patrick Thomas Wellington, Morgan Stanley, Research Division - MD and Head of the European Media Equity Research [37]

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Three questions. First, I want to ask on broadband. Do you need a large telco partner before this business can really take off? It seems to me that a lot of your distribution arrangements, as you say, are very small piecemeal. Do you need one of those major partners before it can really happen? Secondly, just to be fair, across one's analysis of satellite companies, I'm always having a go at SES for using the word broadly. I think broadly can cover a multitude of sins. When one talks about broadly stable revenues for the year, what does that mean? I mean, last year, it was, I think, minus -- something like minus 1.3. So I'm trying to get the -- from you the parameters of what broadly can mean when you apply it to percentage. And then thirdly, can we talk, in the Laurie Davidson (sic) [Laurie Davison] memorial question, about Sky Italia? When that renewal is due, is that a 2019 event? And are you still optimistic that, that will be renewed upon favorable terms?

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Rodolphe Belmer, Eutelsat Communications S.A. - CEO & Director [38]

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Thank you, Patrick. On the distribution strategy in Europe, we have the -- a clear, a two-pronged commercial strategy: on the one hand, partnering with large telcos, like Orange and MASMOVIL, for instance, that we have just signed; and specialized distributors, which we want to revitalize to help them scale up their commercial capabilities.

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Patrick Thomas Wellington, Morgan Stanley, Research Division - MD and Head of the European Media Equity Research [39]

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Sorry, I was actually referring to Africa.

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Rodolphe Belmer, Eutelsat Communications S.A. - CEO & Director [40]

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Yes, yes. Thank you, Patrick. I got that. In Africa, we are trying to follow the same approach and to develop a specialized networks of distributors or signing specific partnerships with some of those. For instance, we have signed a kind of privilege partnership contract with Coollink in Nigeria, which we feel very encouraging, and want to help them scale up their activities and accelerate the distribution of broadband services in this very large and promising country. And we're also trying to ink a partnership with large telco over the continent. I know that we're following the same approach. Even though we have not been able to sign a contract with large telcos, negotiations are underway. The fact is that we still don't really know for sure what will be the best approach in terms of distribution for Africa, and Africa might be different from Europe. That's why we are keeping all the doors open at the moment, and we are developing a full set of distribution strategies in Africa to make sure that we are able to invest in the best and the most appropriate one for this continent. You shouldn't come to Africa with preconceived European ideas and skills, might not work and you should adapt to the specificity of that large -- the continent. And that's what we are doing. As you know, because I mentioned that in the past, we have quite experienced leaders in Africa with deep, true and successful track record of success in this region. In the broadly stable and -- well, I'm not going to comment on the multitude of sins. It will take too long for today. What broadly stable means, so it means broadly stable. I cannot really answer with more precision. I -- the reason why we don't say 0 (inaudible) 0.0% is because it's a bit -- the notion is a bit more vague than that. Could it be a bit shy of 0%? It could be. Are we comfortable with the consensus? We are. That's somewhere in that region. Sky Italia. Sky Italia, it's not for now. I think we don't really communicate on the dates -- on the expiry dates of each of our contract, but it's not what the -- renegotiation of the contract with Sky Italia will not have an effect before 2021, positive or negative, meaning that there is nothing for this fiscal year, nothing in the next fiscal year to be expected from the Sky Italia contract, which is -- which has quite some -- a long time to run still.

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Operator [41]

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Our next question comes from David Cerdan of Kepler Cheuvreux.

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David Cerdan, Kepler Cheuvreux, Research Division - Equity Research Analyst [42]

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Dave Cerdan, Kepler. Few question for you. First is on your guidance for 2018 for top line. So in H1, you were short of EUR 16 million. So you expect to get back this number. So can you maybe explain in details and with some figures what you expect per segment, so for Video, Data, et cetera? And is it correct that Government Services should have a lower activity in H2 versus H1? So this is my first question. Second question is your degree of confidence in delivering this broadly stable sales guidance. We're now -- and just 4 months from the end of the year for you. And at which action are you confident in this number? Are you sure at 100%? What is at stake? What is at risk? And what is the proportion of revenues on which you are not secured? Third question is on the Konnect Africa. It's below the expectation. So can you remind us the rationale to invest so much money in this project? And what could be the revenues you can generate from this activity at maturity?

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Rodolphe Belmer, Eutelsat Communications S.A. - CEO & Director [43]

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Thank you, David. On the top line expectations for fiscal year '19, we said that we are confident with a broadly stable landing. Why? Well, you're asking details segment by segment. We said that in the Video segments, we are expecting the second half to be a stable to a slightly growing on the back of the new contracts we have been able to sign in Ethiopia, in Afghanistan, in Slovenia. And we said also that always in the -- still in the Video segment, we were positive on our feelings in the MENA region at the 7/8° West position, which is growing on the back of volume and price increase. And we also said that the impact -- the negative impact, the way which is imposed on our Video revenue trajectory by FRANSAT, is going to wash out, to fade away during this -- the second half. And it's at a drag of around EUR 1 million per quarter. Fixed Broadband, we're going to have some growth in the second half due to the ramp-up of Konnect Africa, I will give more color on that in a second, and also the result that we expect from our overhaul distribution strategy in Europe. And Mobility, we'll find some growth back, some acceleration of growth in the second half because of the China Unicom contract. You know that this contract is worth EUR 100 million over 15 years, which is around EUR 7 million per year, i.e., EUR 3.4 million per semester. And there is new business where we'll -- able to (inaudible) maritime segment that [we] won. It's a lot of indications to show that the -- there is a positive -- substantial positive flow of good news coming across all the verticals in the second half, which should turn out into a better profile in the second half, which gives some substance to our financial objectives of adding broadly stable revenues for the entire fiscal year. I think -- well, it's as (inaudible) as I could as an answer to your question. Konnect Africa, as I said, we're very enthusiastic and very encouraged by the initial market response in that segment, which is expected to become, over time, a very substantial source of revenue for our company. Dozens, dozens with an s, millions of revenues that we expect from that segment with a progressive ramp-up. We said that the first year was expected to be in the order of a few million euros of revenue, on the high side one single-digit, progressively ramping up. And actually, the core of our return to growth strategy lies in the Connectivity segment. We think that there is a very, very substantial latent demand for high-speed Internet everywhere in every regions where telcos do not go with their territorial technologies, and it's confirmed by the initial response we have from the marketplace in Africa. And that's the reason why we're investing in that segment because we think -- and the first elements of evidence we have, confirm that is a very substantial source of growth for the future of our company and, most probably, for the future growth of our industry.

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David Cerdan, Kepler Cheuvreux, Research Division - Equity Research Analyst [44]

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And just maybe just a question on the fiscal, on the income tax savings you can deliver. There was some press articles saying that you could save between EUR 20 million and EUR 30 million. Is it a number that makes sense? And so maybe can you give us more colors on maybe on the timing also of this tax savings effect?

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Rodolphe Belmer, Eutelsat Communications S.A. - CEO & Director [45]

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On the new French tax law, there was an element to the French tax law which says, in essence, that the principle of territoriality of tax is going to be applied to Eutelsat and to satellite fleet operators as it is for the rest of the industry and the rest of the fleet operators in the maritime or the addition segments, which is a good news, which should have significant impact for our tax level and which should alleviate our tax burden. I would remind that we paid last year around [EUR 160 million] of tax, 90% of that being paid to France. What's the value -- what's the quantification on our assessment of this amendment? We don't know, and that's the reason why we are not commenting on that today because the discussion with the French tax administration on how we should implement that new amendment, enforce it are -- has just started actually, started -- I think it's last week, meaning that's the very beginning, which means that we are not able to give an accurate or a meaningful range. And the figure you're referring to is a (inaudible) figure, meaning that while -- it's a (inaudible) figure. I'm not going to comment more on that. When is the impact of this tax reduction to be expected? It's for this fiscal year. I think that for the entire, we're expecting that, whatever it will be, to materialize and to have an impact already as of this fiscal year as a whole. When do we expect to have more concrete, more precise view and -- or even a range to communicate? We don't really know. We expect to have this -- well, to have a more firm view before the end of this semester. It's an expectation, it's a hope, it's not a promise. But that's what the early signals we have from the French administration let us believe. Sandrine, do you want to add something?

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Sandrine Téran, Eutelsat Communications S.A. - CFO & IT Officer [46]

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No. No, no, that's comprehensive.

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Operator [47]

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Our next question come from Giles Thorne of Jefferies.

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Giles Thorne, Jefferies LLC, Research Division - Equity Analyst [48]

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I have 3 questions. The first one is back to the question of promotions. And you've given a very comprehensive answer. It feels like the last thing we need to understand is what's actually been happening because some of those initial promotions -- initial 2-year promotions must now be expiring or some must have expired. So what happened at the end? Did the customer go back on to the rate card? Or was there some kind of new settlement? Second question -- next few questions are based on Fixed Broadband. First one's Europe. With the preferred partnership program, you've really cut ViaSat off [at the knees]. I just wanted to understand that a bit better. Could you confirm that ViaSat's [EBR] vehicle is no longer going to get the 50 megabit per second product that you've already sold them for their launch markets in Scandinavia or in -- I forget the other ones? And then secondly, Bigblu is obviously becoming quite a kingmaker in Europe. What have you done to make sure that they don't go back to ViaSat? Have you, for example, offered them a better revenue share? And then turning to Fixed Broadband in Africa, very different picture to Europe. You're actually in a position, ViaSat, within Europe, in so much that you're relying on capacity that's owned by your competitor, Yahsat. So given Yahsat knows your cost base for Konnect Africa or until the point that you launch your own satellite there, is this a structural disadvantage? I mean, can they just not undercut you and outperform a market share? Are there any structural impediments from using Yahsat's capacity in Africa? That was it.

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Rodolphe Belmer, Eutelsat Communications S.A. - CEO & Director [49]

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Thank you, Giles. Well, on the -- well maybe Michel here will take the question on the Video segment, and I will take the questions on Broadband.

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Michel Azibert, Eutelsat Communications S.A. - Deputy CEO and Chief Commercial & Development Officer [50]

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On HOTBIRD specifically, because there are promotions on other hotspots, then HOTBIRD as well, for the migration to HD, but on HOTBIRD basically, as we explained, the scheme is generally 2-year ramp-up. And yes, at the end of the 2 year, the customer pay the full price. And this customer have stayed. I mean, we're not seeing customers moving out from the migration to HD because at the end of the 2-year they say, "And that is too expensive." So it's working well. Of course, the effect of the full price reset is progressive. Two years ago, basically, we were moving like 30 channels on a full year basis to HD. So that's relatively modest in terms of economic effect, and it's progressive. But there is nothing to worry about that. On top of that, of course, there is the Ultra HD promotion, which comes with a softer, I'd say, ramp-up scheme and which has also some slightly dilutive effect on the mix of price. But again, that some point in time, we will stop monetizing Ultra HD, but this is not yet coming. But HD is fine.

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Giles Thorne, Jefferies LLC, Research Division - Equity Analyst [51]

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So do you expect -- just to be absolutely 1,000% clear, in the short to medium term, you expect the decoupling of volume growth, the pricing declines for HOTBIRD to -- whatever, to reverse, to recouple.

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Michel Azibert, Eutelsat Communications S.A. - Deputy CEO and Chief Commercial & Development Officer [52]

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Yes. If we're on -- specifically, on the migration to HD, that's going to generate a positive effect. Yes, absolutely. Now of course, on HOTBIRD, you have other things, the number of channels, the differential (inaudible), et cetera, the one-shot negotiation. But on the HD migration, it's a virtuous circle, which has started and which materialized in positive impact on revenues.

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Rodolphe Belmer, Eutelsat Communications S.A. - CEO & Director [53]

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Well, now on the -- on all your questions around Broadband. You are implicitly asking what's the status of our relationship with ViaSat. Maybe I shall say that we have signed an agreement, a framework agreement with ViaSat in Europe, which gives a sort of frame of our -- to our relationship in Europe and which avoids any difficulty on dispute of any kind, which might happen in the dissolution of a contract or of marriage. And what that -- maybe we should say is that ViaSat is intending to stay on retail capacity in Europe on their own, on our capacity on KA-SAT capacity, and we have contractual relationship in place to enable that. The key focus of our strategy is now PPP in Europe and the large telcos. And as I said, I'm coming to your second question, we are -- we have seen very encouraging results of this program, notably with Bigblu Broadband that you mentioned, and you referred to him -- to them, sorry, as a kingmaker in Europe. It's certain that it's the largest specialized distributor of satellite-based Internet in Europe and are quite skillful and they grow very well. Are they a kingmaker? Unfortunately and immodestly, we believe that we are kingmakers in Europe. We are the only company with the very substantial program to launch incremental capacity progressively in Europe to sustain the progressive growth in -- of demand in that segment. We have KA-SAT capacity. We have -- in a few months from now, we have the HTS capacity of the Konnect Africa satellite, part of the capacity being initially reserved for Europe. And we have again, in 3 years' time from now, the KONNECT VHTS, the highly capacity KONNECT VHTS satellite coming in line for Europe, meaning that we are the only company to make the promise to distributors that they can progressively grow and accelerate their growth and their revenues. It's very important because the main pain points of this business in Europe at the moment is the scarcity of the capacity and the congestions of the beams where demand is, meaning that the name of the game is to be able to develop scalable distribution networks, but also to bring progressively -- enhance the capacity to enable the growth in our subscribers and also the growth of capacity per user to accommodate to the usage of the Internet of today. And we are the only company with this program, which means that it's in the interest of the best of the most performing distributors to join forces with us and to enter into long-term partnership with us. And that's what we have been able to do with Bigblu, and that's exactly the intrinsic basis of our partnership with them. On -- in Africa, we use, actually, today, Yahsat capacity, Al-Yah-3 capacity as a basis for our initial development in Africa. Maybe I should say that our own satellite, VHTS satellite, will be launched in -- by the end of this year and will come online a few months after that, which mean that we'll have our own capacity at that moment. The key element for us, the key maybe notion to understand is that our key priority is to prepare for when we have our large capacity in Africa and in Europe. And what we're doing is prepare the ground for that, prepare the commercial strategy, prepare our teams, prepare our networks of partnerships. That's what we do at the moment. And the way we see our capacity of KA-SAT and our capacity on Al-Yah-3 that we lease from Yahsat is a preparation of that ground, meaning that what kind of pricing do we practice in Africa at the moment. We practice the kind of price we will be able to practice with our Konnect satellite. I think it's a sort of implicit, indirect way to answer your question. And of course, with the capacity we have on Konnect and the productivity of that satellite, we have productivity of cost per megabits with the satellite, which is absolutely competitive and unprecedented for the African market.

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Giles Thorne, Jefferies LLC, Research Division - Equity Analyst [54]

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Just to follow up on the European piece. Can you confirm that you will not be offering ViaSat access to the preferred partnership program? And if you're not, then that means that basically in terms of product, they're going to be bringing a knife to a gunfight until the point that ViaSat-3 arrives in Europe. Is that correct?

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Rodolphe Belmer, Eutelsat Communications S.A. - CEO & Director [55]

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It is correct. We are not developing the proper partnership with ViaSat. We have another kind of arrangement with them. That's the framework agreement that I have just alluded to, which is different. It will enable them to continue to perform their retail operations in Europe, and there is no restriction in that front. And we are happy if they are successful because it will develop our own revenue on KA-SAT. But our view is that we are pushing different roads, different path, and we are building partnerships with companies like Bigblu Broadband, who are interested to develop the KA-SAT business today, but with whom we think that, in the long run, they will be also interested to continue the way, the journey with us and will be interested in taking capacity on the HTS satellite part of this, the capacity, which will be initially given to Europe and, of course, which will help us fill our VHTS satellite when it's coming online in 2020 -- well, late '20, 2022. That's the notion. And of course, we are following different paths with ViaSat, with themselves. They will comp on their assets 3 satellites, which will come later, and it's true that they don't have interim capacity in Europe, interim capacity that we have with the Konnect satellites.

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Operator [56]

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Next question comes from Sami Kassab of Exane.

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Sami Kassab, Exane BNP Paribas, Research Division - Media Research Director, Co-Head of the European Media Team & Analyst of Media [57]

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I have 2 questions, one on Africa and one on Video. Can you elaborate on the competitive landscape on the African market compared to your initial expectations, especially in the context of the Echostar-Yahsat partnership? And do you think it's fair to say that the competitive pressure may lead you to invest significantly more in sponsoring consumer premise equipments than perhaps initially planned? Can you perhaps discuss that, Rodolphe? And secondly, with regards to Video, can you elaborate on professional Video performance in Q2? Do you expect any change in the second half of the year in professional Video? And lastly, how many HD channels do you have on the fleet right now? Is it growing? Will it grow? And by how much?

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Rodolphe Belmer, Eutelsat Communications S.A. - CEO & Director [58]

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Thank you, Sami. On the competitive landscape in Africa, our view has not changed. And actually, we must say that we think that our business potential will not be really affected by the competitive landscape in Africa. The demand in that market is very, very, very large, first, very encouraging, and second, we have the best capacity with the Konnect satellite, meaning that the capacity which is the most abundant but also the cheapest, meaning that first, we think that we're not really influenced by the competitive intensity; and second, we will have the best technological solution for -- I think it [mean] that if competition matters, we will lead the batch. That's the first element. Have we changed our view on the kind of marketing investment we have to conceive and the investment we shall make in the CPEs, the customer premise equipment, in Africa to sustain consumer demand? We have not changed our view. And we have always considered that the cost of CPE was a key factor in emerging geographies with low level of purchasing power, like Africa, and that we should find a way to reduce as much as we can the entry cost to -- for consumers in our service. And we have learned that in Russia. As you know, it was one of the explanation for the slow takeoff of our initiative in Russia, which is, in some parts of the country, the most remote parts of the country, having also low level of purchasing power for the population. Professional Video, well, maybe I will just give you the highlight, and Michel can give more precision. We think that the Professional Video segments will continue to decline, affected by price decline in the same kind of order as what we see in the Fixed Data segment, which works but which has the same kind of generic, even though Professional Video might be a bit better than Fixed Data. Michel, do you want to comment on that?

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Michel Azibert, Eutelsat Communications S.A. - Deputy CEO and Chief Commercial & Development Officer [59]

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I think -- no, it's sort of stays in the same range, a little bit better than Fixed Data, but the same trends on pricing in particular. And the only -- to note that on the q-on-q, Q2 to Q1, has been okay. But maybe you should not extrapolate on that. We have not seen a big decline in revenue in the -- between the 2 -- the 2 quarters. But the trend is what was described by Rodolphe.

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Sami Kassab, Exane BNP Paribas, Research Division - Media Research Director, Co-Head of the European Media Team & Analyst of Media [60]

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And on price, do you have any update on the number of channel and how it is grown and how it is perhaps projected to grow?

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Rodolphe Belmer, Eutelsat Communications S.A. - CEO & Director [61]

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Well, UHD, I think that the number we have is a bit below 20. At the moment, it's growing. And it's -- well, it's in line with our objectives. As you know, we said that our 2020 objective was to have 20 UHD channel. You will remind us that that's what we have in our strategic plan and we are -- we have -- we're at that kind of level at the moment.

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Michel Azibert, Eutelsat Communications S.A. - Deputy CEO and Chief Commercial & Development Officer [62]

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What we see also is some of them are doing well. I mean, the feedback we receive, for instance, from some pay-TV operators like, for instance, nc+ in Poland, is that we've been successful with the launch of their sports channel, of their football channel, 4K. Also, you reform how we starting forecasting rate. So there is a good momentum. And yes, we're getting closer to 20 -- the figure of 20 UHD channels, which -- speaking about tuning channels, we have currently 27 feeds but a little less than 20 channels, yes.

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Operator [63]

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Our last question today is a follow-up question from Michael Bishop of Goldman Sachs.

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Michael Bishop, Goldman Sachs Group Inc., Research Division - Equity Analyst [64]

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Just a very quick question. I think at the beginning of the call, you mentioned you're very confident in beating or exceeding cash flow for the year, and consensus looks like it's just under EUR 410 million. And given the run rate in the first half, it was pretty strong. Are you confident that you can beat consensus at EUR 410 million?

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Rodolphe Belmer, Eutelsat Communications S.A. - CEO & Director [65]

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Yes, I -- well, I can just reiterate what I said, that we are confident to achieve all of our financial objectives, including cash flow, and we might even exceed cash flow since the guidance we gave on cash flow didn't include any tax element, tax relief element, which as you -- as I said, we are expecting now due to the new French law. And these improvements, these alleviations of our tax burden will materialize this fiscal year. And that's why we're confident to meet or exceed this very important financial objective that we have.

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Operator [66]

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That concludes today's question-and-answer session. Mr. Belmer, I would now like to turn the conference back to you for any additional or closing remarks.

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Rodolphe Belmer, Eutelsat Communications S.A. - CEO & Director [67]

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Well, thank you. No closing remark on my side. Thank you for your attention today and see you soon for our next results or for some shows that we're -- road shows we're making in the next few weeks.

Have a good day.

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Operator [68]

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This concludes today's conference call. Thank you for your participation. You may now disconnect.