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Edited Transcript of ETL.PA earnings conference call or presentation 14-Feb-20 8:00am GMT

Half Year 2020 Eutelsat Communications SA Earnings Call

Paris cedex 15 Feb 14, 2020 (Thomson StreetEvents) -- Edited Transcript of Eutelsat Communications SA earnings conference call or presentation Friday, February 14, 2020 at 8:00:00am GMT

TEXT version of Transcript


Corporate Participants


* Michel Azibert

Eutelsat Communications S.A. - Deputy CEO

* Rodolphe Belmer

Eutelsat Communications S.A. - CEO & Director

* Sandrine Téran

Eutelsat Communications S.A. - CFO & IT Officer


Conference Call Participants


* Aleksander Peterc

Societe Generale Cross Asset Research - Equity Analyst

* Giles Thorne

Jefferies LLC, Research Division - Senior Research Analyst and Technology Research 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




Operator [1]


Good day, and welcome to the Eutelsat First Half 2019/'20 Results Presentation Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Rodolphe Belmer, CEO. Please go ahead, sir.


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


Welcome, and thank you for joining us today for the first half 2019/2020 results presentation. I am Rodolphe Belmer, CEO; and I'm joined on today's call by Michel Azibert, Deputy CEO; Yohann Leroy, Deputy CEO and Chief Technical Officer; and Sandrine Téran, CFO.

Let's start by taking a quick look at the recent business highlights. In terms of financial performance, first half revenues for the 5 operating verticals stood at EUR 636 million, down 4.9% on a like-for-like basis. The EBITDA margins stood at 77.9% at constant currency, a level close to last fiscal year.

Cash CapEx stood at EUR 189 million, well within the EUR 400 million annual average. Discretionary free cash flow stood at EUR 108 million, down 56% at constant currency and perimeter, it is strongly impacted by phasing elements, are not reflective of the full year trend.

The second half will notably benefit from cash interest savings and the EUTELSAT 5 West B [interest] proceeds. Meanwhile, the net debt-to-EBITDA ratio stood at 3.2x from 3.1x a year earlier.

In terms of operating highlights, the first [all] figures were in line with expectations, and the second quarter saw an improvement in trend versus the first, with a sequential stabilization of revenues.

We will come back to this later. Profitability remains robust, with an EBITDA margin of 78%, despite the revenue decline. We launched the LEAP 2 cost-saving program to generate OpEx savings of EUR 20 million to EUR 25 million by FY '22. It will underpin discretionary free cash flow generation and enabled us to deploy resources in the growth verticals, while preserving our EBITDA margin.

We continue to serve a high level of shareholder remuneration with a comfortably covered EUR 1.27 per share dividend paid out in the first half. And the share buyback program to start in the second half.

And we made progress on future growth levers. Within broadband, the successful launch of EUTELSAT KONNECT, bringing new resources of Africa and Europe.

In Mobility, the procurement of EUTELSAT 10B with substantial firm commitments, and the rollout of 2 complementary initiatives in IoT to add a third lever to our connectivity strategy.

Let's now take a look at a few of these highlights. Starting with the revenue performance in the second quarter. With the exception of broadband, all applications show an improved year-on-year trend in the second quarter relative to the first. Notably, Broadcast, Data and Professional Video on the back of improved volume trends, Government Services, thanks to a normalized comparison basis and Mobile Connectivity with a catch-up of the one-off booked in Q1.

On a sequential basis, i.e., Q2 versus Q1. I would also highlight the stability of Broadcast and the return of the operating verticals to slight positive territory.

Moving then to the successful launch of the Konnect satellites on the 16th of January. Plan to enter into service in the fourth quarter of 2020. It will bring 75 gigabits per second of incremental capacity, enabling the provision of high-speed broadband services to households and corporates. This longer weighted capacity is a key milestone of our Connectivity based return to growth.

In Europe, it will offload congested beams in zones of high demand in Western Europe, enabling us to start growing our customer base once more and petting the way for Konnect VHTS.

In Africa, the enhance coverage and incremental resources will enable the full speed rollout of Konnect Africa.

We also made progress on Mobility and IoT.

In Mobility, with the procurement of EUTELSAT 10B, to be launched in 2022, it will provide unmatched coverage across EMEA, where we have identified a shortage of Ku-band for mobility, with firm multiyear pre-commitments with Panasonic and Gogo, representing 1/3 of the HTS capacity of this satellite.

In IoT, with the development of 2 complementary initiatives, the rollout of IoT FIRST and end-to-end managed service operating in Ku-band on our existing geostationary fleet. It will also address the complementary subsegment of the IoT market.

The order of the first 4 ELO constellation nano satellites, kick starting a project aimed at providing global coverage at a limited cost as it complement to terrestrial IoT LPWA networks.

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


Michel Azibert, Eutelsat Communications S.A. - Deputy CEO [3]


Thank you, Rodolphe. First half revenues amounted to EUR 637 million versus EUR 658 million in H1 2018-'19. They notably reflected a negative perimeter effect of EUR 2 million related to the carryforward impact of the disposal of EUTELSAT 25B in July, the positive currency effect of EUR 10 million and a change in other revenues of plus EUR 3 million, of which plus EUR 2 million related to currency hedging.

Excluding other revenues, the revenues of the 5 operating verticals were down by 4.9% like-for-like.

Let's have a look at each application. Broadcast, 61% of total revenues, recorded H1 revenues of EUR 389 million, down 1.6% versus last year.

Data and Professional Video, 14% of group total, saw revenues of EUR 88 million, down 17.3%.

Government Services, 12% of revenues, generated revenues of EUR 78 million, down 7.8%.

In Connectivity, Fixed Broadband, 6% of revenues stood at EUR 39 million, a decline of 4.4% year-on-year.

And Mobility, 6% of revenues, saw broadly flat revenues of EUR 41 million.

Other revenues stood at EUR 1 million. They included a negative hedging impact of EUR 5 million.

Let's look at each vertical in more detail, starting with Broadcast. First half revenues in Broadcast were down 1.6% like-for-like. This reflected mostly the termination of the contract in Sub-Saharan Africa and the effect of the return of a couple of transponders in Russia, which occurred in the first quarter.

Q2 revenues stabilized on a quarter-on-quarter basis. On the commercial front, a multi-year contract was secured at the HOTBIRD neighborhood to broadcast RTVE, free-to-air content demonstrating the unparalleled reach of HOTBIRD in Europe and MENA.

In Africa, 2 multiyear contracts were signed for capacity at 7 degrees east, 1 with Orao Telecom Congo also including a[Eutelsat series hybrid satellite OTT]service agreement; and 1 with AfricaXP, encompassing capacity at 16 degrees east as well.

Second half revenues will benefit from the entry into service of EUTELSAT 7C, bringing incremental capacity to Sub-Saharan Africa.

Conversely, they were impacted as expected by the loss of capacity on EUTELSAT 5 West B, leading to the termination of certain services at the 5 West position -- 5 degrees west position.

Let's take a longer-term view on core Broadcast revenues, i.e., excluding Fransat revenues, which are modest but volatile. These revenues have been remarkably stable over the past 10 quarters, with the exception of the step-down, mostly explained by the previously mentioned Russian and African specific events. This is unique in the industry and reflects 2 factors: one, our geographic exposure, with emerging markets accounting for over 50% of revenues and our absence from the mature North American market.

And two, the fact that our business model is very predominantly DTH, the most resilient subvertical compared, for example, with cable head-end feeding.

A quick look at the channel counts. The number of channels broadcast stood at 6,879 at the end of December, down from 7,067 a year ago, reflecting the termination of a contract in Sub-Saharan Africa with an impact of circa [10 -- 100] channels, the end of the contract for a couple of transponders in Russia and a negative one-off relative to uplink channels.

Excluding these items, the number of channels would have been stable.

HD channels continued to grow at a brisk pace, up 7% and continued to outpace the number of MPEG-4 channels, which were down 2% over the same period.

MPEG-4 remains considerably more advanced than HD, with a penetration rate across the [fleet] of 69% versus 23% for HD channels.

As a result, the consumption of megabit per second on our core TTH hotspots is slightly up.

A quick focus on HOTBIRD. Channel count was stable compared to December 2019. Year-on-year, the number of MPEG-4 channels rose by 9% to 635. It remains outpaced by the ramp in HD channels, which is up 13% to 392.

MPEG-4 is still considerably more advanced than HD with a penetration rate on HOTBIRD of 65% versus 40% for HD channels.

Revenues for Fixed Data stood at EUR 88 million in the first half, down 17% year-on-year. The performance continues to reflect ongoing pricing pressure and the highly competitive environment in this application.

The first quarter was marked by substantial volume losses, notably in Latin America. However, trends improved in the second quarter, both for fixed data and Professional Video.

In addition, the comparison base is set to ease in the second half of the year.

Government services revenues stood at EUR 78 million, down 7.8% year-on-year. This reflected the carryforward impact of the U.S. government renewal campaigns of the past 18 months. The pace of decline almost [half] in the second quarter with the full 2018 loss of a single large contract now included in the basis.

Second half revenues will benefit from the contribution of the EGNOS hosted payload on EUTELSAT 5 West B and from the relocation of EUTELSAT 7A.

Fixed broadband revenues stood at EUR 39 million, down 4.4% year-on-year. In Europe, the PPP, the Preferred Partner Program is continuing its ramp-up, and is gradually being extended to new geographies. However, business remains constrained by a lack of capacity in high demand markets and the decline of traditional distributors.

In Africa, revenues remained modest at this stage, and the emphasis remains on trailing distribution models in a limited number of countries.

The entry into service of Konnect in fall 2020, will unlock the potential of African broadband as well as provide much-needed incremental capacity in Europe.

Turning to Mobile Connectivity. First half revenues stood at EUR 41 million, broadly stable like-for-like. The ramp-up of capacity contracts on KA-SAT and maritime business as well as the carryforward effect of the UnicomAirNet contract on EUTELSAT 172B, offset the end of a temporary wide-beam contract on the same satellite EUTELSAT 172B last year.

Second quarter revenues include the catch-up of a negative one-off of circa EUR 1 million in the first quarter, this is neutral over the semester.

The second half should benefit from the materialization of different pipeline opportunities.

Turning to the fill rate and backlog. The number of operational transponders at end December 2019 stood at 1,387, down by 32 units year-on-year, principally reflecting the end-of-life in stable orbit of EUTELSAT 12 West B. They were unchanged versus June 2019.

The number of utilized transponders stood at 966, down 4 units year-on-year, also reflecting Eutelsat  12 West B, end of [5].

Since end June, the number of utilized transponders was up by 6 units.

As a result, the fill rate stood at 69.7% compared to 68.3% a year earlier and 69.2% at the end of June.

The backlog stood at EUR 4.3 billion at the end of December, versus EUR 4.6 billion a year earlier and EUR 4.4 billion at the end of June.

It was equivalent to 3.3x 2018-'19 revenues with Broadcast representing 68% of the backlog.

It includes the capacity commitments secured on the recently order, EUTELSAT 10B satellites.

Now over to Sandrine for the financial performance.


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


Thank you, Michel, and good morning, everyone. Starting with profitability.

EBITDA stood at EUR 496 million at December 31, 2019, down by 4%. And the EBITDA margin stood at 77.9% at constant currency versus 78.8% a year earlier, a decline of just 0.9 points, despite lower revenues and higher costs associated with broadband activity. It reflects strong cost discipline in our core businesses although at this stage, there is no benefit from the LEAP 2 cost-saving program, which has only just been launched.

Group share of net income stood at EUR 141 million versus EUR 150 million a year earlier, down by 6.4% and representing a margin of 22%. That reflected mostly on the negative side, the decrease in EBITDA for EUR 22 million, lower other operating income for EUR 44 million, as last year included the capital gain on the disposal of the interest in EUTELSAT 25B.

On the positive side, an improvement in net financial result of EUR 12 million, mainly reflecting the benefit of last year's debt refinancing and an effective tax rate of 18% versus 35% last year, reflecting the change in tax territoriality treatment in France.

Net cash flow from operating activities amounted to EUR 353 million, down EUR 25 million year-on-year as a result of lower EBITDA and an unfavorable comparison basis for change in working capital. These 2 elements more than offset the benefit of the change in tax treatment.

Cash CapEx amounted to EUR 189 million versus EUR 130 million last year.

Interest and other fees paid net of interest received amounted to EUR 57 million versus EUR 24 million last year, reflecting a change in the phasing of coupon payments following the refinancing of 2 bonds last year.

As a result, discretionary free cash flow amounted to EUR 108 million on a reported basis.

At constant currency and perimeter, it stood at EUR [1,205] million, down by EUR 132 million or 56%.

As mentioned earlier by Rodolphe, it should not be extrapolated for the year as a whole. The second half will benefit from several items. A mechanical EUR 64 million year-on-year reduction in coupon payments, resulting from the above-mentioned change in coupon phasing, leading to a net EUR 30 million reduction over the full year.

Cash CapEx, notably reflecting insurance proceeds in respect of EUTELSAT 5 West B, and a more favorable comparison basis for working capital requirements.

At end December 2019, net debt stood at EUR 3,235 million, up EUR 162 million versus end June. This increase reflected principally the dividend payment of EUR 360 million end November, only partially offset by discretionary free cash flow of EUR 108 million, an inflow related to changes in perimeter for EUR 55 million, including half the consideration for EUTELSAT 25B for EUR 67 million, and the purchase of the minority stake in Broadpeak for EUR 10 million.

On a year-on-year basis, net debt decreased by [EUR 70 million]. As a result, the net debt-to-EBITDA ratio stood at 3.2x compared to 3.1x 1 year earlier.

December usually represents a peak in the annual net debt profile, reflecting the timing of the dividend payment. As a result of the refinancing of 2 debt maturities last fiscal year, the weighted average maturity of the group's debt has increased from 2.7 years to 4.2 years. And the average cost of debt after hedging decreased from 2.8% to 2.4%.

Liquidity remains strong at the end of December, with undrawn credit lines of EUR 798 million and cash of EUR 373 million.

Now back to Rodolphe, to speak on the outlook.


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


Thank you, Sandrine. As a reminder, our strategic road map relies on 2 pillars: first, maximizing cash generation, leveraging all the components of free cash flow; and second, building the foundations of a return to growth by extracting value from Broadcast business and capturing the Connectivity opportunity.

Within this framework, let's look at the progress made on the priorities for the current year that we communicated in July.

On cash generation, LEAP 2 was launched in November 2019, consisting of a wide-ranging reorganization, a reduction of 100 headcounts outside France, a global hiring freeze in the legacy businesses and austerity measures in France, including a compensation freeze over 3 years. The relocation of our Paris headquarters is on track for a move in June, 2020. And we continue to maintain all the other levers under tension, in particular, this year will benefit from a cash tax and interest reduction.

At the same time, we work to extract more value from our Broadcast activities by exploiting growth pockets with the entry into service of EUTELSAT 7C, bringing incremental capacity in dynamic markets, upsell incremental services with the first contract in Africa for the CIRRUS platform.

And we made progress to prepare for a Connectivity driven return to growth with the launch of Konnect, the procurement of EUTELSAT 10B and the kick off of our IoT projects.

Let's turn to the outlook for the remainder of the year. The improved trend in operating vertical revenues in the second quarter was in line with expectations. Revenues in the second half will benefit from an easing comparison basis, in particular are in Data and Professional Video.

As the chart on the left shows the average revenue basis for the second semester is almost 2% below the level of the first. And several tailwinds, notably the entry into service of EUTELSAT 7C in January with incremental capacity in Sub-Saharan Africa. The EGNOS payload on EUTELSAT 5 West B, which just started operations. In Government Services, secured business stemming from the relocation of EUTELSAT 7A, and new business in the pipeline in several applications, in particular, in Mobility.

Turning to the financial outlook. In terms of revenues, we confirm our station of landing within the range of EUR 1,270 million at EUR 1,315 million.

As a reminder, this range includes the impact of the loss of capacity on EUTELSAT 5 West B. And as mentioned in October, we are likely to be at the low end of this range. All of the elements of the financial outlook shown on this slide are also confirmed.

A quick word on dividends, and most specifically, on dividend cover. In the past 3 years, the success of our focused cash flow generation strategy has generated an annual discretionary free cash flow of EUR 410 million on average, implying a cash conversion of almost 29%. This represents cover of 1.4x and headroom of EUR 115 million based on last year dividend of EUR 1.7 per stock.

Our free cash flow target for fiscal year '22 is of around EUR 500 million, representing an additional EUR 100 million in headroom relative to the current dividend. Moreover, this target is already supported by several elements. Notably the non recurrence of negative one-offs affecting fiscal year '19, and notably hedging for EUR 20 million and the impact of EUTELSAT 25B disposal for EUR 31 million. Savings of around EUR 35 million, thanks to the debt refinancing. Incremental cash tax savings not recorded last year of around EUR 20 million. On top of this saving, will come the benefit of the planned reductions in the French corporate tax rate.

So these elements are secure, even before the benefit of other efforts on cash generation and the benefit to the top line from the incremental capacity.

The next 3 years, will indeed see the arrival of targeted incremental capacity, credibility, but not exclusively in connectivity to support the top line.

EUTELSAT 7C has just entered service with 19 incremental transponders address in Sub-Saharan Africa, one of the remaining pockets of growth in Broadcast.

Konnect, due to start operations in fall 2020, bringing much needed capacity to boost our broadband operations in Europe and in Africa. EUTELSAT Quantum, due to enter service around the same time, offering unrivaled flexibility for Government Services vertical, and towards the end of 2022, product VHTS will start operations with 500 gigabits per second of VHTS capacity and firm the commitments for Orange and Thales, it will represent a major milestone of our productivity strategy in Europe.

EUTELSAT 10B, expected in the first half of 2023, will bring 35 gigabit per second of incremental HTS capacity in Ku-band for Mobility over EMEA with the third -- the third already presold to Gogo and Panasonic.

The combination of firm pre commitments on Konnect VHTS and EUTELSAT 10B, represents a run rate of EUR 65 million in terms of annual revenues.

And finally, the ELO constellation will be tested with the first series of 5 satellites between 2020 and 2021 to address the IoT market. If this test phase proves successful, other satellites will be added to the constellation to reach a total of 25 satellites by 2022.

Setting aside incremental productivity related capacity, it is worth noting that the [burst] of our capacity renewal cycle will have been completed by the end of fiscal year 2022, with only 4 out of our top 15 heritage positions orbital slots, requiring a launch during the period fiscal year '23 to fiscal year '28, and these positions account for 90% -- 90% of current revenues.

Furthermore, design-to-cost is expected to continue generating productivity gains.

What it means? It means that we call -- it means that what we call the maintenance CapEx required for the 5 years beyond July 22 amounts to just around EUR 20 million -- to EUR 220 million per annum on average. This compares with an average of around EUR 280 million for the last 5 years. This means that depending on the opportunities governing our choices on growth CapEx during that period, we will have significantly enhanced flexibility to support cash generation and unattended shareholder remuneration over the very long term.

A few words to conclude. Second quarter was fully in line with expectations, with revenue trends improving relative to the first. In particular, Broadcast has now returned to stability following 1 of contract losses in the first quarter. The EBITDA margin was highly robust, despite the decline in revenues, and we confirm all our financial objectives for fiscal year '20 and beyond.

Our free cash flow generation provides substantial headroom to cover our dividend in the next 2 years. We have targeted capacity coming online, which will support a progressive improvement in top line trends.

After fiscal year 2022, our maintenance CapEx requirements are limited, providing us with far greater flexibility in terms of cash allocation.

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


Questions and Answers


Operator [1]


(Operator Instructions)

We will now take our first question from Michael Bishop from Goldman Sachs.


Michael Bishop, Goldman Sachs Group Inc., Research Division - Equity Analyst [2]


Yes, just a couple of questions from me, please. Firstly, you've talked quite a bit about the strong mobility pipeline, both in terms of the secured capacity on 10B, but also more broadly, the reason for launching 10B, you seem to be suggesting you actually found that there's going to be a shortage of Ku capacity. And I think Germany consensus, obviously, across the industry is fears of overcapacity. So I was wondering if you could just give us a little bit more color about the potential upside in Mobility? And then secondly, just on Video. Could you just sort of walk us through for calendar '20 and '21, the sort of levels of contract renegotiations that you're going to face?


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


Thank you, Michael, for those questions. We -- well, in the Mobility segment, what we -- we have a very strong pipeline down the road. In the short term, we said that our second semester or second half should benefit from a strong pipeline in the Mobility segment, with some contracts producing fruit in the second half. But more importantly, on the longer-term, we said that one of the reasons why we decided to procure the EUTELSAT 5 or EUTELSAT 10B acquisition, a very large satellite in Ku-band, producing around 35 gigabits of capacity is because we think that demand for Ku-band capacity or aviation connectivity, mostly in Europe is very strong.

It's true that when we think of the -- of the capacity situation in Ku-band, globally, we should be very selective in our conclusion. We certainly believe that in some verticals and in some areas, there is clearly another capacity driving price down, and it's mostly true in the fixed data and Professional Video segments. In the Connectivity segment, we see a very substantial demand driving the demand in volume up very, very strongly in the future. And it's especially true in Ku-band and especially true in Europe where, for different reasons, there have been very little investment in Ku-band in HTS designed for the Mobility segment.

And we think that's a very strong support for the growth in that -- for this kind of technology in Europe. And the reason why we've been able to sign so important pre commitments, such a long time before the launch of the satellite with 2 blue-chip customers like Panasonic and Gogo, it's exactly because of that situation of shortage for that capacity in Europe. Additionally, I must say that the competitive intensity in that segment will probably be a bit lower because of the -- of how the orbital arc is occupied in Europe. We have -- we have a very significant portion of the orbital positions over Europe, which means that there is no -- not much room for a very intense competition in Europe in that vertical.

Second question, Video. Well, our Video business, our Broadcast business, as we call it, is very resilient. We -- our figures for this service are slightly down, minus 1.5%, which is a very slow decrease, quite different, quite distinctive in our industry. I'd like to insist on that because it's very important. Not all Video segments are the same for all the companies operating in our sector. We are very stable because we are DTH mostly and because we are emerging markets.

And in -- for those 2 reasons, our business is extremely resilient. What we also can show -- demonstrate is that this business has been stable for a very long time and should remain sort of stable for the foreseeable future. We have some important contracts renewal in the coming years. The 2 most important ones are, our contract with Sky Italia, which was first part of this contract to be renewed by the end of this fiscal year. And we also have an important contract with Nilesat. What I can say is that, of course, there will be strong negotiation, intense negotiations, as it's a bit customary between a customer and a provider. I cannot say much on that at this point in stage. What I can say is that we have taken very prudent assumptions in our business plan, which means that we are relatively comfortable that our business plan and on our guidance shouldn't be anyhow affected by the outcome of those negotiations. And that together comfort I can give you today without entering into too much details.


Operator [4]


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


Nicholas Michael Edward Dempsey, Barclays Bank PLC, Research Division - Research Analyst [5]


I've got 3. So when you're describing why you should improve in the second half. You referred to business in the pipeline in Mobility. And I appreciate you can't tell us exactly what that is. But we're already 1.5 months into the 6 months of the second half. So if you'd sign new contracts in May, for example, it won't do much for the second half. So do you have new business that's being signed that's about to start contributing? Or are you still effectively hunting those contracts and you don't know when they'll start?

Second question. Your comments on African Broadband, I guess, are not especially encouraging. Can you explain exactly why Konnect can get that market started for you? Is there just a chance that there isn't the demand or the kind of structure with resellers to create the business that you'd hoped for in Africa? And third question, can you update us on the situation in Russia? You told us you took back some transponders from 1 customer, and we're very hopeful of selling those to another with a delay, where are we at with that?


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


Well, thank you, Nick. Of course, when we refer to the -- to the growth in the Mobility segment on the back of a strong pipeline, we refer to contracts, which have already been signed because as you said very well, if we sign contract now during the -- this semester, the impact on revenue will be probably module. But on this one, maybe Michel can give more color.


Michel Azibert, Eutelsat Communications S.A. - Deputy CEO [7]


Yes, just to mention, you remember last year, we had a -- we have announced that we signed a contract with 1 big service provider for Maritime. So these contracts include a ramp-up. So you see a, let's say, this already contracted revenue going, going slightly up. And in addition to that, we have -- with the same group, in fact, other contracts already signed, some of them starting as soon as January on -- in the Pacific area and in the Mediterranean area. So there'll be, especially on Maritime, there will be a contracted ramp up, and we also hope for some signing of contracts for the second part of the semester. So all in all, the Mobility growth in the pipeline is pretty secured for this half year.


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


Thank you, Michel. Now coming back of your 2 -- on your 2 remaining questions, African Broadband. Well, why do we believe that we're going to accelerate growth and to generate strong revenue out of that initiative? At the time being, it's true that our results in Africa are a bit below or below our expectations. Why? We are using the time that we have at the moment in Africa to test different commercial models. What we think is that we now have the technology with the Konnect satellite and latter on with the Konnect VHTS satelltie1, we have the technology to better address the very important business potential for consumer Broadband in a -- the different geographies that we cover -- that we cover, including Africa. What's the missing piece? Is effective commercial distribution models. And that's -- and we are testing that in Europe, and we are testing that in Africa, and we are in the testing phase, where we try to prove what's the best commercial model in terms of scalability, to maximize the ability of the fill rate of our satellites, which is very important in our business model, as you know very well. And second, in terms of profitability because, of course, it does also matter to us. We are exactly in that phase in Africa, which takes a bit longer than expected. I admit that very well. And we already mentioned that quite a few times in the past. This testing phase this -- will end in a -- at the end of this semester, semester ending in June, and we will take to conclusion and try to focus on the most promising commercial model from -- as from the launch, to start progressions of our Konnect satellite. What I can say without entering into too much details. At this stage, that we see some results in our tests which -- in our tests, which are very promising, and we tend to -- we think we might have found some commercial models with the potential to be rolled out to other continent, which are promising. That's what I can say at this point in time.

Russia, you mentioned our Russian Broadcast business, which is in very solid, with price well oriented, but with -- we had a bad -- with bad news, I would say, a few months ago, when we had to take back 2 transponder from a customer called NTV-Plus, we thought we would be able to resell those transponders rapidly, takes a bit more time than anticipated, but we are still in negotiations with some potential customers in the region to resell those transponders. We think it's a really conjunctural one-off events. And as I said before, when you look at the price for -- for instance, orientation, in Russia, you -- it sort of proves and indicates that this market keeps very dynamic.


Operator [9]


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


Paul Sidney, Crédit Suisse AG, Research Division - Research Analyst [10]


Just a couple for me, please. Firstly, on the threat from new LEO constellations. So LeoSat no longer exists, but Starlink has now launched, I think, 240 satellites, I mean Starlink constellation. I was just wondering what are your thoughts on the perceived threat from these new LEOs? And do you think your ELO strategy is enough to offset a potential rising competition? And secondly, just on European broadband. You mentioned that the PPP strategy has been extended to some new countries, and you specifically mentioned high demand markets. I am just very, very interested to know if you could give us a bit more detail on what markets you're seeing that high demand for European Broadband? Just really interesting to learn a bit more about the geographies where that demand is high.


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


Thank you, Paul. On the first question on LEO constellation. And the quantitative pressure it might impose on our ELO strategy. Well, what we think is that while ELO strategy is very distinctive, very different. What we'll be able to produce with our ELO constellation, nano satellites, which are very, very cost effective, very inexpensive and which will operate in LPWA standard. It will enable produce a very low-cost IoT proposition for our customers. In 2 respects, the cost of the capacity, which will be unable, which will be extremely low. And second, the cost of the terminals, the interest of operating in LPWE -- LPWA, sorry, is that you can work with terminals, which are -- which have a very long autonomy in terms of power, plus they are very inexpensive, around a dozen of euros or dollars per unit, which makes a very, very unique proposition to the marketplace. Of course, with LEO constellation of the kind developed by our peers of specs and the others. Well, you don't have the same proposition at all in terms of the cost of capacity, but also in terms of cost per terminal, which are by a factor of probably of [100] or [1,000] more expensive than the one we are going to operate with our ELO constellation, meaning that we're going to operate in 2 different markets, 2 different niches, addressing 2 different sets of potential customers. And we also believe that for that same reason, actually, terminals is a very crucial part of our business model. We think that those LEO constellation that our peers are launching probably will not impose the strong competitive pressure on our core business of tomorrow, which is the broadband to consumer. For broadband to consumer segment, you need to have terminals, which can address the mass market, in terms of cost and in terms of robustness and in terms of ease of installments of the equipment. And what we think is that only with geostationary satellites, you can have terminals, which are low cost, which are robust and which are relatively easy to install. And for that reason, we think that this segment, the broadband to consumer segment not only is far bigger than the other Connectivity segments, far yet, 2x, 3x bigger in terms of revenue potential, plus the competitive intensity will be far lower than in the other Connectivity segments like Mobility for instance. And the resilience, meaning our pricing power will be far higher because what will be at stake in this segment, the broadband to Consumer segment is literally hundreds of thousands, millions of terminals pointed to our obital satellite -- orbital positions to our satellites, which will create the same kind of pricing power, the same kind of resilience as the one we have today in the Broadcast segment. And that's for -- that's -- for that reason that we have picked that segment as the core of our connectivity strategy. It doesn't mean that we are not going to add Mobility, IoT layer to our connectivity strategy, but the core of our strategy is broadband to consumer for that reason. Very huge business potential, very strong resilience, very strong pricing power for the long term. Of course, it comes with distribution challenges that we are overcoming at the time being, but it's really, really worth making that effort.

In the European -- in our European expansion or results in Europe at the moment, in the Europe -- in the broadband to Consumer segment, we have actually developed a commercial model that we call PPP, under which we are -- proof distributors to be more aggressive in the distribution of broadband products to the rural areas in Europe with a lot of latent demand. It's working very well for us. And we are actually -- well, our partners actually expanded in new geographies, for instance, in Scandinavia, where we think there is a latent demand -- very substantial affordability. Those markets are very well, highly connected, meaning that there is a lot, there is a very strong demand for connectivity in areas which are not well connected by the industrial infrastructure.


Paul Sidney, Crédit Suisse AG, Research Division - Research Analyst [12]


And if I could just have a quick follow-up, Rodolphe. And you still see addressable market in Europe is around 4 million homes?


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


Yes, well, what the -- so -- what the addressable market in Europe. When we say -- what -- when we describe this addressable market, I'd like to be clear that this is the market -- the addressable market that we envisage for the very long-term after 2030. When the test infrastructure development will have been fully completed, fiber and 5G. When we analyze all the deployment plant of the terrestrial telcos, when we analyze all the connectivity plans of the different government bodies in Europe, we -- I think that there is a consensus that a minimum of 2% of the European population will remain unconnected to the high-speed Internet by the terrestrial technologies after 2030. And that those 2% that we are targeting, and they represent between 3 million and 4 million homes in Europe, with the purchasing power and with the very strong need at this point in time to be connected to the high-speed Internet by alternative technologies. And the only one being satellite at this point in time. Of course, the addressable market today is much larger than that. It's 10x bigger than that, given the status of the rollout of the fiber and the likes in Europe at the timing. But for the very long time, that's our core market. That's our fishing pool. And as you can realize, it's far larger that the market that we can address with our own committed capacity at the time being, with satellite like VHTS, we can address only a fraction of that market potential of 3 million to 4 million homes. What does it mean? It means that even though there is competition in Europe with other players coming and trying to address that market. Well, the market is big enough for 2, 3, 4 operators in that market.


Operator [14]


We will now take our next question from Patrick Wellington from Morgan Stanley.


Patrick Thomas Wellington, Morgan Stanley, Research Division - MD and Head of the European Media Equity Research [15]


A couple of questions. Firstly, word on Quantum, I think you implied at one of the calls earlier this year that you had about a EUR 40 million revenue opportunity in Quantum and that much of that business had already been booked, and thus the downgrade at the time. Can you update us on that? I mean, when we look at that chart on Page 33, should we begin to anticipate the roll -- rolling on of a EUR 40 million revenue run rate as we get into the dark part of that bar, which shows it running fully? So that's the first question about Quantum.

Secondly, you talked about Sky Italia. And the other big Broadcast negotiation you've got coming up, I missed the name. But your chart on Page 13, showing Broadcast revenues at stable. Do you think that chart would look like after those negotiations have taken place? And will those have to appear as exceptionals, which have disturbed the otherwise flat trend? Or will that just point downwards?

And then thirdly, a very interesting point at the end about the CapEx, and the EUR 220 million of maintenance CapEx. To what extent are you going to devote to that? I mean, you've got EUR 180 million a year and your EUR 400 million envelope to spare. I mean, is that all going to go -- is the implication that's all going to go on new growth projects? Are we going to see a longer list of new projects on Page 33? I mean, it's been noticeable over the last few months, that you've now started to initiate your own growth projects as well as sort of fulfilling the ones of your predecessor. So is that a new revenue growth orientation to which that CapEx -- to which that extra financial flexibility is going to go? Or is it just going to go to shareholder returns?


Rodolphe Belmer, Eutelsat Communications S.A. - CEO & Director [16]


Thank you, Patrick. On Quantum, I think we -- we alluded to the fact -- in the call -- in the past, we alluded to the fact that this satellite should produce the kind of revenue produced by a typical traditional satellites of our fleet. Which is actually a bit below EUR 40 million on average. And we maintain that we -- that Quantum should produce the kind of revenue produced by a traditional satellite of our fleet. And that is the order of EUR 40 million -- a bit below EUR 40 million. Well, we don't have pre commitments yet on this satellite. We have some reservation, but which have not turned out into a precommitment yet. The satellite is still -- well, it's still a bit far down the road to -- for us to sign a firm precommitment. We anticipate its entry into service by fall of this year by full 2020. We see lots of excitement from our customers for this satellite, which is very unique, very innovative, but we have not signed anything yet, meaning that we -- you can probably check a level of run rate revenues of the kind that the figures you mentioned, a bit below actual rate for the first year probably should be a bit more prudent.

Well, for the Video segment, we have 2 big renewals in the next 24 months, that's only 2, I would say, but there are 2 of those, one with Sky Italia, but actually -- and one with Nilesat. Nilesat, it's our Egyptian partner, distributing a large number of transponder, it's actually bigger than Sky Italia in the Middle East. The discussions with Nilesat, I have started already, and we think they are well oriented. The discussion with Sky Italia will begin shortly, I guess. But the element that I'd like to insist on that was Sky Italia renewal is staggered into many different subcontracts. The first big one starts in December of this year. But after -- well, the volume of Sky Italia transponders is split into many different small number of contracts that will -- what was -- the expiry date is [just of staggered] in the next -- in the 2 years after. When we think of how -- of what will be our revenue profile in the Video going forward. We might have some reduction in the revenue in some big contracts, which will be compensated by growth coming from other regions. What we say, what we can prove, I think, is that we have growth coming from emerging markets in a number of channels, new pay TV platforms, developing in those regions, pricing, well oriented in some region, while our overall, our pricing in the Video segment in the DTH segment, is stable. We have growth in some regions, which compensate erosions in some more completed areas, meaning that if we want to take a longer view on the, the revenue profile in Video, a little bit independently of the outcome of the renovation with Sky Italia. We think that the Video profile will -would look like the Video profile we have -- we are showing on this Page 13 that you were referring to. And what I said in my presentation is that we have taken already in our assumptions for our future business plan on which we ground our guidance. We have taken a quite prudent assumption for Sky Italia, it might be more prudent than what we're going to choose to -- end up with. The maintenance CapEx, well, the reason why we are producing that new figure is to give you some reassurance that our level of maintenance CapEx is very low and is it a reduction, actually, as we said, due to the effort that we are making in our design-to-cost approach. It means that there are 2 options. Of course, we are embarked in a growth strategy in the Connectivity segment, and we are investing a lot. But it means that if -- and we're going to continue on that trajectory. And typically, what we have in our plan is to continue to invest in Connectivity to accelerate growth after the launch of the VHTS satellite, which is scheduled in our fiscal year 2023.

Of course, we have to be pragmatic. If some believe that growth is not coming after that because it's not reflected in our stock price. If some believe that the growth is not coming, we are very pragmatic people. Who could imagine that we're continuing to investing into -- well, in expansion capacity after 2023, if growth is not coming on the back of our investment in Connectivity. And that's exactly the intention by showing that figure. Our intention is to spend the EUR 400 million in CapEx and to devote almost half of that to expansion in Connectivity, where we feel there is a very strong business potential for the future, and that we think it should be affected somehow in our evaluation. But admittedly, growth doesn't come, we don't make it. It takes more time. We can always devote part of our CapEx envelope to maintenance only, and it gives us a lot of flexibility to continue to serve a record high level of dividend, if I take my peers in comparison.


Patrick Thomas Wellington, Morgan Stanley, Research Division - MD and Head of the European Media Equity Research [17]


That's great. I mean, if I could just follow-up. I mean, maybe people are doubtful about your growth profile because your reliance on distributors. And we've heard already today quite a bit about distributors. I mean, one of the things you mentioned was that in Fixed Broadband in Europe, there was a lot of traditional distributors. What does that mean? And how do you place your growth strategy in the context of your reliance on third-party to develop applications. I mean, as you say, in African broadband, they also struggle to develop commercial applications to begin with?


Rodolphe Belmer, Eutelsat Communications S.A. - CEO & Director [18]


Well our broad -- our commercial strategy in -- in the Fixed Broadband segment in Europe relies on 2 big legs, actually. We do resort to large distributors, of the kind of Orange, for instance, large telcos with a wide European footprint to integrate our product within that product portfolio and distributed in Europe. We think it's a very good strategy because those distributors are quite experienced and they are extremely powerful with a strong commercial product to push that new technology in the commercial network. Could we do it by ourselves? Of course, not. And we think it's more effective to rely on those kinds of very powerful distributors. And we rely also on distributors specializing in distributing connectivity services in remote areas to complement the commercial force and the goal networks of large competitors -- of large distributors like Orange. And we think that it does make a lot of sense.

Actually, we don't have sort of philosophy regarding distribution. In some cases, we do distribute ourselves, our products and in some other cases, because we think it's more effective. We do resort to third-party distributors. If you take, for instance, the Video segment. In that segment, typically in geographies like Europe, we distribute through distributors. Why do we do that? We do that because we think that there are many distributors in Europe, which compete the one against the other and which -- which invests a lot of commercial force in pushing our service. What does it mean? It means that we can extract very good margin from that business. And second, it maximize the fill rate of our satellites. And as you can realize, when you look at our figures, our fill rate is relatively good because we see that the more we have distributors, the more commercial force we have, the higher our offering. In some cases, where we feel that there is no so much competition in the distribution landscape, we do integrate distributors. And that's exactly what we did with Nilesat. Nilesat was our distributor in MENA, representing 70% of our revenue in the region, and we think we would be better off by controlling that distributor to control our commercial strategy and exercise more efficiently our pricing power. And the reason why I'm saying that is that we probably have -- might have the same approach in the broadband segment. In Europe, we have a very sophisticated pre-existing commercial structure in Europe with distributors, which are very effective, like Orange, and of course, we rely on this kind of distributors or BBB, for instance, if you want to take the specialized distributor segment. In Africa, we might adopt a different strategy.


Operator [19]


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


Laurence Davison, Deutsche Bank AG, Research Division - Research Analyst [20]


One follow-up, just to come back on the -- your session of emerging market growth offsetting the Video renewals over the next 24 months. You said previously that HOTBIRD revenues are stable or slightly down. The global Broadcast revenues are tracking at the same level. So where is the EM growth? That you're talking about, which should offset any decline in those renewals? Secondly, just on ELO and the CapEx that's going into that. Is part of the -- when we're thinking about the priorities for the EUR 180 million growth CapEx, which is in your forecast. What proportion of that are you at the moment, earmarking for ELO further rollouts?


Rodolphe Belmer, Eutelsat Communications S.A. - CEO & Director [21]


Well, on your last question on ELO. What ELO constellation is was -- it represent a very small, well, according to our standard investments envelope. Well, the magnitude of the CapEx required for this initiative is around EUR [2 dozen million] in total, including the -- well, the space and the underground segment, which means that it's a very small fraction of the EUR 180 million per year that we intend to dedicate to the expansion, to the expansion in Connectivity, a very, very small portion.

Second, we will make that investment in that ELO constellation if and only you know that we're extremely prudent in the -- in our approach to CapEx investments. If we prove after the launch of the first batch of our satellites, which are actually dedicated to test this approach with [untouched] customers, with whom we have discussions already, proving that it works, and it has a very -- well -- and that has actually a commercial interest means that it's small. It's very -- we think there is very substantial potential, given the kind of return we get from the marketplace at the time being. But still, we are prudent and we invest when we think there is a market there. In Video, well, your question was -- is a market growth in Video? In the emerging market? We have some areas in the world where market is growing, and it's true, for instance, well, in the emerging markets, and emerging markets being MENA, Africa, Russia and Turkey. We are also growing in Latin America, but it's a very, very small starting days. And this small growth, of course, it's not a booming growth. This small growth is offsetting the erosion in other parts of the world. I didn't say or that's HOTBIRD is growing. I was -- I said that pricing on HOTBIRD they are relatively stable. That's what I said. And -- but the notion is that we have a slight erosion in the most mature market, which is a very low erosion, which is offset by a small growth in emerging markets. For instance, I say that the price are well oriented in some areas, as I mentioned, Russia, but I should also say that, for instance, the [other 36] is positioned. We also have African customers, and this position is -- well -- has a growing price for both geographies.


Laurence Davison, Deutsche Bank AG, Research Division - Research Analyst [22]


Okay. And just a last question just on C-band. Forgive me, we haven't had any questions on it. So just thought I then ask one, which is, are you now satisfied with the FCC's proposal that all of the details of how you'll be paid both the repurposing costs and incentives costs are now clear? Or do you think there's still uncertainties and you still have question marks over exactly what the FCC are proposing? And also, do you expect the incentive payments to be subject to tax? And if so, what level of tax?


Rodolphe Belmer, Eutelsat Communications S.A. - CEO & Director [23]


Well, on C-band, I would say that we have a sort of, well, mixed feelings. On the one hand, the outcome, well not [a great outcome], but what did the draft order issued by the -- or released by the FCC last week said, is that we should get around $500 million in compensation for the repurposing of our share of the C-band in the U.S. which is higher -- significantly higher than what would have got under the CBA rules that we felt discriminatory. As all of you know, it's more than EUR 100 million more, which is which is a -- in that respect, relatively satisfactory. It means that we were right when we decided to run our own way in that situation. On the other hand, where we are unsatisfied because we think we deserve more. We think that our share of the -- of the C-band in the U.S. is more than 5% of total, and that's a source of a satisfaction on our end, being that we did well, but we could get better. Is everything clear? While the FCC other draft order is very clear, actually, in many respects. The fact is that it's a draft order, means it's still subject to some evolution, and we can feel so that's there are some disagreements from different classes of stakeholders in the U.S. meaning that it might still -- it might -- obviously, still evolve down.

Tax. Still unclear what tax will have to be paid on that amount on those proceeds. Well, our C-band filings are of Mexican nationality. And the nominal tax rate for -- in Mexico is 30%. And that's what you should take in consideration, if you want to be prudent in your evaluation of the value of the C-band for us, but still unclear how much we will pay. We think that those 30% are actually a maximum. That's our understanding of the situation.


Operator [24]


We will now take our next question from Alexander Peterc from Societe Generale.


Aleksander Peterc, Societe Generale Cross Asset Research - Equity Analyst [25]


I just have 2 questions left. Now, the first one is on the backlog, it would seem to me that the mix of your backlog is shifting quite fast.

We're now down to 68% in Broadcast. And if I look at the rule figures, that implies a 14% year-on-year decline. So could you tell us what is exactly going on here? Is there something changing in the way Broadcast orders are coming in? Are they shorter durations? And so that will be just that point on backlog. And the second one, to come back on your future CapEx expansion. So I understand you have 17% of revenue as maintenance CapEx, how much remodel is a central scenario in the long-term as being your growth CapEx, assuming that you continue to invest for growth? Just kind of a central scenario for our long term modeling. And if I look at your free cash flow then going to over EUR 500 million. And I look at your dividend yield at 10%, I don't know what your thinking is, would you still increase your dividend? And see the yield increasing, assuming your share price doesn't move? Or would you devote the excess cash generated to an expansion of your buyback?


Rodolphe Belmer, Eutelsat Communications S.A. - CEO & Director [26]


Okay. Well, thank you, Aleksander. On backlog, well, there is actually an evolution in the structure of our backlog. Initially, our backlog was made mostly of our long-term Video contracts because we have long-term contracts, mostly and only in the Video segment. Now there are 2 factors, actually influencing the evolution of that backlog. First, the Video contracts tend to be a bit shorter than in the past. Even for the pay TV platforms, they tend to be more in the 5 to 7 years range, while in the past, they tended to be more of 10-years duration.

And second, and importantly, we have an increasing share of the Connectivity contracts in that backlog. And specifically in the Mobile Connectivity, the Mobile Connectivity segment works with very long-term contracts, also when we signed contracts with Mobile service providers like Panasonic, Gogo, Global Eagle and the likes, we tend -- because themselves, they want to secure the provisioning of the end customers, which are the [airlines]. They want to secure long-term contracts, and that's exactly what's reflected in the shift of our backlog. Significant portion of Video shrinking because Mobile Connectivity contracts takes a growing share into our backlog and also because Video contractors are shorter than in the past. CapEx, what Yohann is mentioning on the side, which might be of interest. We have, for instance, added to our backlog, this semester the impact of the precommitments, 2 by Panasonic and Gogo, on the E-10B satellite, and that's typical element of -- evidence to prove what I've just said a few minutes ago. Well, CapEx, we don't really envisage our CapEx as a percentage of our revenues. We tend to work with a fixed envelope. And what we have ourselves in our plans is the CapEx envelope, which is of around EUR 400 million for the very long term. What we try to do and the focus of our -- all our efforts is to reduce the maintenance CapEx as much as we can, and we are doing that quite effectively since we moved down from historical level of EUR 280 million annually to EUR 220 million in the future, as we said before. And why do we do that? Because we want to reserve a growing portion of our CapEx envelope for expansion and for our investments in the connectivity applications, broadband to consumer, Mobile Connectivity and the Internet's off-sea network, that's what you should consider in your long-term plan in our view.

And well, you mentioned that we are targeting EUR 5 million of discretionary free cash flow in fiscal year '22. And we reiterate that we are online to meet that, that objective of around EUR 500 million, which enables us to give lots of comfort, lot of security and to broad solidly our dividend strategy and our dividend strategy is a stable to growing dividend in absolute terms. We served [EUR 1.27] last year, stable versus the year before, which -- and the reason why we give so much, so much visibility on our long-term cash flow is because we want to secure our investors to give them comfort that we can continue to sustain our dividend policy for the long run. On top of that dividend, which represents of many substantial yield, as you said, very well. We have added a share buyback component. And we have said that we would invest a minimum of EUR 100 million in the form of a share buyback within the next 3 years, starting this fiscal year and expanding the [2] years after, and that's exactly the intention, continue to deliver a very strong yield. And add if needed, the share buyback component, meaning that our excess of cash flow in the future will be divided into 3 pockets: dividend, share buyback and investment in our growth.


Operator [27]


Now take our last question from Giles Thorn from Jefferies.


Giles Thorne, Jefferies LLC, Research Division - Senior Research Analyst and Technology Research Analyst [28]


I only 2 questions now. So first one is on the Sky Italia renewal. I just wanted to revisit the topic and a particular dimension of what that conversation will look like. When Sky Italia and everybody turns around and says, that Eutelsat has seen a dramatic reduction in the cost of replacement capacity at HOTBIRD. And wants to participate in the economic wind fill. Within the value chain, what are you going to say in response?

And the second thing is just an update, please on the divorce proceedings with ViaSat in Europe. It would be useful to get some color on any of the puts and takes from that? And specifically, is ViaSat going to get hold of an enhanced 50 megabit per second wholesale type product?


Rodolphe Belmer, Eutelsat Communications S.A. - CEO & Director [29]


Well, on the Sky Italia negotiation, of course, I -- negotiations will be intense, will be difficult, as always, in this kind of case that we are quite used to. Actually, the all kind of situation we encountered in many -- in all our large-scale renegotiation with our blue chip customers, and we have gone through quite a lot of them in the past few years, relatively successfully as we have reported regularly.

Of course, Sky Italia will come with arguments, will come with arguments. But at the end of the day, what matters is what kind of service do we deliver to them? Is it needed to them? And can they afford it? And what we think is that our -- the service we deliver in Italy is extremely valuable, extremely. We distribute television to 7 million homes in Italy, which receive television by satellite, and it's the vast majority of Sky Italia subscribers, meaning what we deliver is pretty unique. And when you think of the value, we enable our customers to generate, in Italy, it's absolutely huge. And there is no reason why the service that we sell, well, whose price should be reflective of the value that we create for them. There is no reason that our price should be reduced because the value that we bring, which is addressing the quite wealthy market in Europe. This service that we provide. Well, there is no reason why its price should be reduced. But -- and that's with that mind, that we are -- that with that in mind, that we'll handle that the discussion. Relationship with ViaSat. I'm not sure I got fully your question. We have not totally developed, sorry


Giles Thorne, Jefferies LLC, Research Division - Senior Research Analyst and Technology Research Analyst [30]


Yes, sorry, Rodolphe to cut you off. I said -- let me just repeat it. You're -- what are you doing? You're breaking up, your dismantling all the various joint venture structures you put in place a few years ago. And inevitably, that's a negotiation. And inevitably, there's a -- some kind of give and take. So it would just be useful to get a bit of color on that? Because today, ViaSat has obviously not got access to the same products that your PPP program partners have. And I'm curious to know that whether part of these divorced proceedings, to use that phrase again. They will get access to something like that? Any color is useful really at this point?


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


Well, we have untied most of our relationships with ViaSat already. The only joint venture in which we remain in partnership is what we call EBI. That's the -- that's the KA-SAT satellite. And the wholesale distribution of KA-SAT capacity all over KA-SAT footprint, we have 51% of that, and we control that business, and they have 49%. And ViaSat, they have their own retail operation, that's called, I think its called EVR in Europe and are distributing satellite-based Connectivity to the end market in Europe based on EBI capacity. Could they adopt the PPP approach with EBI? Well its obstantiation relationship that we have with them. And if they were proven distributor like others in Europe, they put access, of course, that capacity and that program, which is open to the effective distributors in Europe. You need some volume, of course, to access this kind of, of program, but there is no restriction. What we like is to have as many distributors that we can, as strong as we can to maximize -- to fill rate for satellites. That's our typical commercial strategy, and we will be very happy to have an effective distributor, distributor with ViaSat, it's not the case, unfortunately. But we would like it.


Giles Thorne, Jefferies LLC, Research Division - Senior Research Analyst and Technology Research Analyst [32]


And just a final confirmation, yes or no. As I understand, the Big Blue have now had to hand back the subscribers that they had with EDR, [to EBR] which now actually gives them a free rein to market, your capacity, the 50 megabit per second product under the PPP in those initial 7 launch markets. Is that right? Do you have now a free hand through Big Blue across all of Europe?


Rodolphe Belmer, Eutelsat Communications S.A. - CEO & Director [33]


Well, we don't really -- we are not aware of the relationship between EBR, meaning ViaSat and PPP, would -- it's not in our remit and we are not aware of that. What's certain is that Big Blue is very strong distributors, very competent and we have developed with them a product, which sells very well in Europe, and which is very encouraging.


Operator [34]


This does conclude today's question-and-answer session. Mr. Belmer. At this time, I would like to turn the conference back to you for any additional or closing remarks.


Rodolphe Belmer, Eutelsat Communications S.A. - CEO & Director [35]


Well, thank you for your attention today and for all your questions. Well this puts an end to our presentation of today. I will insist on 3 elements: our financial performance is very solid; our cash flow is abundant; and we're able to secure for the very long term, our dividend strategy.

I'd like to also that we are distinctive in many respects in that industry. Our Broadcast business is very resilient. Our cash flow strategy is very distinctive. Our ability to serve a distinctive dividend is also very strong. Last point, we have made very concrete steps recently in our return to growth strategy in Connectivity. It's now very close down the road, and we are very enthusiastic on the perspective -- in the perspective of embracing this new era for our group. Thank you for your attention and see you next time.


Operator [36]


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