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Edited Transcript of SESG.PA earnings conference call or presentation 26-Jul-19 7:30am GMT

Half Year 2019 SES SA Earnings Call

Luxembourg Jul 30, 2019 (Thomson StreetEvents) -- Edited Transcript of SES SA earnings conference call or presentation Friday, July 26, 2019 at 7:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Andrew Martin Browne

SES S.A. - CFO

* Ferdinand Kayser

SES S.A. - CEO of SES Video

* John-Paul Hemingway

SES S.A. - CEO of SES Networks

* Richard Whiteing

SES S.A. - VP & Head of IR

* Steve Collar

SES S.A. - CEO & President

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Conference Call Participants

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* Giles Thorne

Jefferies LLC, Research Division - Equity 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

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and thank you for standing by. Welcome to today's SES 2019 half year results conference for investors and analysts. (Operator Instructions) I must advise you the conference is being recorded today, Friday, the 26th of July 2019.

Without any further delay, I would like to turn the conference over to your speaker today, Mr. Richard Whiteing, Vice President and Head of Investor Relations. Please go ahead, sir.

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Richard Whiteing, SES S.A. - VP & Head of IR [2]

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Thanks, Jenny. Good morning, everyone, and thank you for joining this presentation of the half year 2019 results. Today's presentation and the other results document are available as usual on the Investor section of the ses.com website if you don't already have them. As always, please note the disclaimer at the back.

The agenda for this morning is as usual and is outlined on Page 2. In a moment, Steve Collar, President and CEO, will present the main business highlights; Ferdinand Kayser and JP Hemingway, the CEOs of SES Video and SES Networks will cover the main developments in their respective businesses; Andrew Browne, our CFO, will then cover the financial highlights in a bit more detail. The presentation will conclude with some closing remarks from Steve and there we will be the usual opportunity to ask questions after that.

So with that, let hand me over to Steve.

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Steve Collar, SES S.A. - CEO & President [3]

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Thanks, Richard. Good morning, everyone. As usual, I'm going to talk through the highlights and then hand it over to Ferd and JP.

Starting on Page 4, we've delivered a solid first half for the year with our financial results in line with our expectations and consistent with the full year outlook we've given back in February.

Our network business continues to deliver strong sustainable growth quarter-on-quarter with growth up 5% year-on-year and on an underlying basis. And we've also enclosed -- we've also closed some important deals during the first half that will contribute fully in the second half.

Video continues to track to expectations despite the challenging market. I'm also pleased that the impact of our laser focus on cost control and discretionary spending is starting to come through allowing us to keep group operating expenses flat compared to the first half of 2018.

We are continuing to evolve our organization framed around customer focus and success, but also [while minding] internal efficiency and simplification. And having already brought all of our engineering resources together and implemented a common global services team across video networks, we are now combining our video infrastructure and services.

As far as the go-to-market teams, that will be done in Q3. And I see a lot of good momentum coming from those internal organization changes, particularly with respect to our customers where we're getting some very strong feedback.

Our financial outlook is unchanged. As was the case in 2018, we expect the expansion of revenue in the second half and have good visibility of this progression over the course of the next several months and through the end of the year. As you have heard me say a lot, execution is obviously key and that's our focus for the second half, in particular in delivering projects in a timely way and getting our new customers into service as quickly as possible.

And lastly in terms of highlights on this stage, we've made strong progress with respect to C-band in the U.S. and I'll expand a little on why we're increasingly optimistic [to act on the balances of] the needs of our stakeholders will be forthcoming in the second half of the year.

So over on Page 5, the message is that the first half is in line with our expectations across the board, are fully consistent also with our full year guidance. We're on track on video, networks, group and EBITDA. Group revenue was EUR 961.4 million in the first half, which is down 4% in constant exchange. Notwithstanding challenging environment, video is performing to expectations with the prospects of an improving trend relative to the first half, notably with international platforms and MX1 and Ferd will speak to this in a moment.

Another period of strong growth in networks with underlying revenue up 5% following on from a year last year of double-digit growth, and that growth will continue an uptick in the second half of the year and, again, JP will talk about the drivers for that shortly.

It will certainly be boosted with the arrival of the last of our O3b satellites, which have just gone into service. And now with the initial constellation complete, we look ahead to open the mPOWER. And I'm really super excited by the progress we're making on mPOWER. We know through CDR have some good traction developing in the market as we look towards launch in 2021 and expect to talk more about that in the second half also.

So yes. On the numbers, EBITDA very much on track, and we'll continue to be disciplined in terms of cost and discretionary spend. 90% of revenue outlook for the year is already secure, and as I said, whole focus of the business is to execute and deliver on our promise to both customers and to the market.

And then lastly for me, on Page 6, I'll give you a short update on C-band. You will all undoubtingly have seen plenty of activity in the U.S. as the FCC looks to complete the record and ensure that all voices have been heard. Freeing mid-band spectrum for 5G is of national importance in the U.S. but it is a complicated thing and there are many stakeholders. We've been consistent in our view that our market-based CBA proposal is the only one that protects the 120 million TV households in the U.S. while allowing for the rapid and safe repurposing of spectrum for 5G.

Again, as you've all have seen, the CBA has placed a lot of meat on the bones over the last several months, providing transparency over not just the watch but also the hand as it relates to our technical solution, the clearing of spectrum, the accelerated sales process that places spectrum rapidly and fairly into the market and serving the public interest.

As we said in the past, timing is hard for us to predict and the FCC obviously drives the timing, but with the focus that we're seeing in ensuring that the (inaudible) is complete and with comments from the Chairman that he expects to have results to show this fall, I'm more and more optimistic that we'll have clarity on the process over the course of the next several months.

So with that, I'll hand over to Ferd, and then to JP to talk a little bit more about the business, and I'll come back and conclude at the end.

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Ferdinand Kayser, SES S.A. - CEO of SES Video [4]

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Thank you, Steve.

And starting with the highlights for Video on Slide 8. So in the first half of the year 2019, SES Video generated revenue of EUR 605 million. This represented an underlying decline of 8.8%, which has been in line with our expectations. This included the impact of lower revenue from the U.S. wholesale contract that we mentioned in February, and so we believe this is not indicative of the expected long-term revenue trajectory.

Market conditions remained challenging, but nevertheless, we can point to several positives in half 1. First, the 3% growth year-on-year for the number of high-definition and ultrahigh definition channels being distributed by our fleet, which is now at 2,888 channels in total. Second, our initiatives to combine our Video Distribution and our Video Services activities are well underway and progressing well. And lastly, as Steve mentioned, we have now secured 90% of the expected revenue for 2019 in Video, and we are on track to deliver on the full year outlook as was the case in 2018.

The priority for the colleagues across the business is now to close out on the remaining, and we have good visibility, especially in the international markets such as Asia, Africa, and Latin America. Also the combination of both infrastructure and services will be completed in the third quarter, which will also support revenue improvement in-house too, in particular, in the sports & Events business where we continue to build commercial relationships with customers such as the major sports leagues, sports (inaudible) and other key [clients],

During the first half, we concluded some important contracts. We have mentioned some of those on Slide 9. First of all, the long-term renewal in Crown Media for the Hallmark Channel, this one stands for other renewals concluded during the first half of the year 2019 in North America where the contract of a total of 15 transponders were renewed. We concluded various contracts in the international markets. Amongst the most important ones, are the ones we concluded in Ethiopia, one of the fastest-growing African economies, contracts with the public service broadcaster, ABC, for their various channels and with the Association of Ethiopian Broadcasters and the 4 key international broadcasters being members of the Association. The agreements foresee a dedicated Ethiopian neighborhood on NSS-12 at [57 east] with some existing channels migrating from other positions to NSS-12 and, of course, new additional channels being launched on this orbital position.

Another important development is the one in Germany, our single-most important DTH market with a continuous reach of 17.5 million households where we reached agreements with both Samsung and Panasonic, both manufacturers now having their TV sets in Germany with the HD+ encryption and software being integrated, so allowing consumers to access the HD+ offering without any additional set-up box or other hardware. Additional TV set manufacturers will follow shortly.

Regarding MX1 and the Video Services, we continue to see a positive dynamic in the sports and events area, in particular good example here are the distribution of the signal of the Women's World Cup and the run of the Eurovision Song Contest.

So now moving to the individual Video segments in more detail, starting with the distribution part on Slide 10. Underlying revenue was 8.7% lower than last year where a key factor has been lower revenue from our U.S. wholesale business based on our renewal with the customer. In addition, we continue to see some volume reductions in U.S. cable business.

In Europe, we have now some slight volume reductions, especially with some long-term renewals secured at the end of 2018 and which are referred to in the Q1 results. In addition, we continue to experience the effect of the expiration of certain capacity contracts signed on a short-term basis as noted in the second half of 2018.

Trading conditions in international markets continue to be challenging, but I'm happy to see that the effects of our recent wins as the pace of the decline is much -- is now much lower than it was the case in 2018.

In addition, we have taken steps to address some challenges for YahLive, where it is fair to say the performance has not been as we have liked. So we are fully integrating the YahLive sales and commercial operation teams and the colleagues are focused now on building commercial pipeline as well as delivering further operational efficiencies.

Finally, on Slide 11, Video Services were 9.4% lower than last year. HD+ was stable with the sustained number of paid subscribers during the first half of the year 2019 compared to last year.

And regarding MX1, revenue was lower as we continue to shift our portfolio and exit certain low-margin legacy contracts. This is part of the bigger initiative I have mentioned earlier, and will continue and will ensure that even stronger value proposition for our customers who will see greater benefit from the combination of our infrastructure and services capabilities, especially in the IP distribution, OTT and home video space. And with that, I hand over to JP.

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John-Paul Hemingway, SES S.A. - CEO of SES Networks [5]

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Thank you, Ferd, and good morning to you all.

So starting with the highlights for SES Networks on Slide 13. As Steve said after a great 2018, we continued to deliver solid growth in the first half 2019 with Networks delivering 5% underlying revenue growth. We reported total revenue of EUR 3.6 million in the first half, and we grew across multiple segments, including Government, Aero, Cruise, Mobile Network Operators and Energy. I'm also confident our strong results will continue to improve as we increasingly leverage the capabilities of our GEO high-throughput satellites. We are developing strong sales pipeline leveraging both SES-14 in the Americas and SES-12 across the Middle East and the Asia Pacific regions. In addition, SES-15 continues to be a very successful satellite, and we've continued to expand in support of North America Aero connectivity services.

As of the end of H1, we secured over 85% of the 2019 revenue outlook, which implies another strong year of growth. So we're on track, as Steve mentioned, and we know what we need to execute on and are fully focused on delivering within the full year range.

Our execution in the second half is underpinned with good visibility on customer demand, service deployments, milestone-based projects and our ability to access the latest batch of O3b MEO satellites, which are now operational.

It is worth noting that our pipeline O3b mPOWER, our next generation of MEO capabilities, is developing well with many customers talking about extending existing contracts into O3b mPOWER services.

So now I'd like to move onto Slide 14 and look at some of our more recent customer successes.

So I mentioned Teleglobal in the Q1 call, but I'd like to highlight it here again. It's not -- not only due to its significance in the Indonesia market and as a major customer of our SES-12, but also to note that our service readiness is progressing very well, and we look to start services in the very near future and bring revenues in the second half.

Another key development in Q1 was the European Maritime Safety Agency, or EMSA, for whom we continue to support with an active mission over the waters of Iceland in support of the Iceland authorities. We actually see strong potential for other such remotely piloted aircraft projects in the future.

With Genting, we are delighted to leverage our signature cruise solution for their flagship Dream Cruise suite, providing incredible passenger digital experiences, further demonstrating that our combination of MEO low latency and GEO satellite coverage with optimized service performance is becoming the market-leading solution in the cruise industry.

And lastly on this slide, with INRED, a leading Columbian service provider, we are actively engaging in the Colombian Ministry of Telecommunications project to support its initiatives to ensure that digital future belongs to everyone. Leveraging our signature enterprise solution and our managed platform service on SES-14, we will work together with INRED to deliver 1,000 WiFi hotspots to remote areas and are confident there is significant expansion options in the future.

So now I'll just split through the individual vertical performances, starting with government on Slide 15. We are reporting nearly 8% underlying growth in the first half compared to last year with positive developments in both of our government segments: first, with the U.S. government where growth was driven not only by the expansion of MEO solutions but also saw growth in a number of GEO-based programs; second, with our global government business, which included positive contribution across all of our portfolio, including GovSat-1, the continued momentum in supporting critical humanitarian operations and our institutional programs. We expect to see growth in the second half with government customers with strong execution on known projects.

So moving on to fixed data on Slide 16. In what remains a challenging market, fixed data was slightly down in the first half 2019 by just over 2% overall, a result which we still believe is a robust performance and reflects some project timing aspects. As mentioned earlier, we continue to deliver new commercial successes with telcos, mobile network operators and service providers, especially in the Americas, but also in Asia with SES-12 and with MEO across multiple regions. We saw good development with multiple Tier 1 network operators with Digicel, with DataCo in PNG and with Tigo Chad. In general, the progression [and take-up] of our managed services and platforms is positive in both MEO and GEO and underlines our strategy to manage the space's teleport services and allow our partners to focus on excellent regionalized customer experience.

Finally, in mobility on Slide 11, we continue to deliver the first half another strong performance with nearly 11% underlying growth. Aero continues to be a significant driver of growth and strengthens our position in the market, specifically with the ramp of SES-15 and SES-14 and, indeed, our Ka-based aero network, which enabled expansion with our service provider partners to airlines across the Americas and the Atlantic. We focused on working with Intelsat and partnering to help restore services after their satellite [anomaly] an IS-29e. As a result, the second quarter also included the first revenues from our restoration agreements and with the full 6 months contribution to come in the second half of the year. In maritime, our market-leading position in cruise continues to get stronger. The benefit of recent wins, as we showed today, and customer upgrades is now becoming pronounced in our overall performance.

So in summary, the first half of 2019 has developed as per our expectations with commercial successes across the business. This leaves us in a good position with good knowledge of what we need to achieve for the remainder of the year to deliver another year of strong growth.

And with that, I'll hand over to Andrew.

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Andrew Martin Browne, SES S.A. - CFO [6]

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Thanks very much, JP. Good morning, ladies and gentlemen. Turning to financial highlights on Page 19. As Steve has mentioned, we delivered a solid performance in line with expectations and remained on track to meet 2019 financial outlook as indeed we did in 2018. Revenue for the first half was EUR 961.4 million with underlying revenue lower by 4.2% compared to H1 2018. On a reported basis, revenues was 2% lower, including the benefit of the stronger U.S. dollar. At constant FX, total revenue, including preaudit and other, was 5.1% lower than the prior year.

EBITDA of EUR 584.5 million represented an EBITDA margin of 60.8% or indeed 62% when excluding the EUR 11.4 million restructuring charge. As Steve has mentioned, our operating costs were kept flat on a constant FX basis, really tight focus on cost, discretionary spend allowed us to deliver operational efficiencies across the group and, indeed, offsetting a continuing investment in expanding our Network business. But combined with the impact of the lower reported revenue, EBITDA was 5.9 % lower as reported and 8.4% lower at constant FX.

Net profit was EUR 169.2 million compared to EUR 227.7 million last year and essentially following the trend in EBITDA with additional depreciation related to [data] satellites being brought into service. Free cash flow before financing of EUR 379.8 million benefited from the 30.3% reduction we've seen in investing activities compared with the half year of last year and somewhat offset by working capital movements during the period.

Net debt to EBITDA was lower at 3.5x, which compared to 3.53x at H1 2018. This reflects the similar payment phasing as last year with a significant portion of cash outflow from interest and dividends being paid in the first half of the year. Accordingly, we expect to achieve at or below 3.3x at the end of the year and in line with our firm commitment to investment-grade status. Finally, there's no change in the financial outlook because of the expansion, and this, indeed, includes our CapEx forecast.

So turning quickly to the remaining pages, starting with revenues on Page 20. The change in FX, as you can see, accounted for EUR 31.5 million of the total movement on a reported basis. At constant FX, the underlying business was EUR 42 million or 4.2% lower, reflecting the growth in Networks with Video development as expected. Total revenue, including EUR 10.2 million of periodic and other revenue, compared to EUR 19.3 million in the same period 2018.

EBITDA -- turning to EBITDA on Page 21. EBITDA was lower as reported and adjusting for the change in FX, as mentioned. This is driven by lower revenue with operating expenses flat. In addition, we booked EUR 11.4 million of restructuring charge as part of our outgoing program to optimize our overall operating structure and operations across the group. Accordingly, EBITDA margin was 60.8% and including the charge, 62%.

Net profit, on Page 22, was EUR 169.2 million for the first half. Depreciation was higher including the impact of the entry into service of new satellites, as we mentioned. Net financing costs were slightly higher than the prior period, which benefited from higher levels of capitalized interest. We recorded EUR 22.4 million as income to H '21 tax income and some gains in noncontrolling interest of EUR 12 million. These 2 line items were affected in the first half of last year by deferred tax assets related to the entry into service of GovSat-1 that we owned in partnership with the Luxembourg government.

CapEx on Page 23. as already mentioned, there is no change compared with what we outlined in February.

Leverage on Page 24 and development. Net debt to EBITDA was 3.5x when compared to 3.53x at the same point last year. We expect 2019 to follow the same trend in 2018, and accordingly, we expect to be below 3.3x by the end of the year and, as said already, a firm commitment to investment grade.

Lastly, the financial outlook on Page 25. Indeed, as Steve has commented, it's unchanged, certainly are on track to deliver 2019 as indeed we did in 2018.

So with that, I will conclude and hand back to Steve.

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Steve Collar, SES S.A. - CEO & President [7]

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Thanks, Andrew, and shortly over to you. In summary, solid first half from both the revenue and EBITDA standpoint, and now it's about execution through the second half. We're on track. The.

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is unchanged. We've got good visibility of our second half revenue, as you heard from Ferd and JP, and without taking the second half as much as we did in 2018 with Networks providing the growth engine for the business.

I'm pleased with the impact of the operational changes that we've made to date have been seen, both in feedback from customers and control over the costs and discretionary spending, which is now evident. We're committing to delivering customer success, and simplifying our team and organization is really contributing to that goal. And lastly, C-band is starting to crystallize, thanks to a lot of work of stakeholders across-the-board. And I'm optimistic about our role in creating a real win-win in the U.S. with our market-based solution.

So with that, we'll stop and hand back to Richard to Q&A.

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Richard Whiteing, SES S.A. - VP & Head of IR [8]

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Thanks, Steve. [Jenny], I think we can go ahead and take our first question.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And your first question comes from the line of Paul Sidney from Crédit Suisse.

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Paul Sidney, Crédit Suisse AG, Research Division - Research Analyst [2]

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Yes. Just -- I have 3 questions, please. Firstly, Steve, you're clearly indicating that H2 trends should improve. I was just wondering could you just sort of pull together all the potential positives that will contribute to that and the second half improvement as we see a lot of narrative in the statements relating to it. I was just wondering if you could just sort of pull it all together for us. And perhaps in the interest of balance, are there any tailwinds, specific tailwinds in the second half that we should be aware of as well?

And then secondly, just sort of more bigger picture. It's been quite a tough couple of years for you. I mean it does feel that things are changing for the better. Do you think we are now heading into any of sustainable revenue growth? Do you think sort of H1 was the tipping point?

And then just lastly on C-band. There's clearly all the debate around the auction structure. And I was just wondering if the C-band Alliance was faced with a potential FCC-led auctions, would that be potentially acceptable to the C-band Alliance under certain conditions?

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Steve Collar, SES S.A. - CEO & President [3]

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Thanks, Paul. Look, I mean I'm not sure I've got loads to add to what JP and Ferd said around what's going to drive the uptick. What I'd say on the network side is we've got a significant number of projects, which we are on track to deliver in the second half, and that will drive a significant amount of that revenue. We've also closed a number of customer deals. We've actually had a really strong quarter in terms of closing deals on the network side, but they don't get implemented until sort of early in the second half. So we're kind of driving through that now, and that will start to flow through and provide revenue in the second half.

And then on the Video side, there's a decent amount of stuff in HD+. We've got some stuff in MX1, sports and events, in particular, where we're looking for some upticks in international business that we're in the process of closing. So all of that, I would say, gives us momentum and, as I said, good sort of visibility and again it tracks what we delivered in 2019. So it made me have good confidence.

And similarly on the -- I think a tough couple of years. Yes, I think it's true that the industry is going through probably more change than at any time in its history. But we delivered on guidance last year, we intend to do that this year. And so I think being clear internally and externally in what we need to do and then delivering on that has been kind of something we talked about right from day 1 and continue to do that.

And now on C-band -- and your question was sort of around auction design -- look, I think one of the key benefits of what we're proposing, and it's something that I think is recognized as we look at the narrative and the record, is speed. And the auction that we designed really delivers that. It's very quick. It's quicker than any other auction type, but it's also quicker than any FCC-led process, certainly, based on previous auctions. And so look, I don't think we're locked into anything. But we think what we put on the table is really creative and leads to -- delivers on one of the major objectives, which is speed.

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Operator [4]

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Your next question comes from the line of Michael Bishop from Goldman Sachs.

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Michael Bishop, Goldman Sachs Group Inc., Research Division - Equity Analyst [5]

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Yes. Just a couple of questions for me, please. Firstly, just picking up on the guidance question again. It feels like there was a lot of reference to 2018 and the second half delivery. But in 2018, I think you did more non-Video being at the low end, and you haven't done that today. But if we look at the run rate of Video overall, it's tracking well below the low end and even the midpoint of guidance for the year. And just picking up on the comments and the last question you were talking about, a decent amount of visibility, particularly in the services business. So I just wanted to get a sense that -- it sounds like in Video, you can maybe hit the low end of the guidance for the year, but that's going to be driven by recovery in services at a lower margin. And then if you step to group EBITDA, you're tracking quite below that, even with the FX benefits in the first half relative to the USD 1.15. So from a profitability standpoint, what really gives you confidence to deliver on the guidance?

And then secondly, just a C-band-related question. I was just wondering whether you have any more insights on potential tax implications. And so 2 parts to that question, the first part is around some of the CBA commentary about maybe some voluntary proceeds going to the FCC for things like raw broadband and then, secondly, your own tax implications of any proceeds thereafter.

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Steve Collar, SES S.A. - CEO & President [6]

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Yes. Thanks for that. I mean -- so we've obviously -- we've given a range of guidance and have given a pretty good amount of visibility, I think, in Video, Networks sort of overall and EBITDA. And what we said is we're on track in all of them, and that's a positive as far as I'm concerned. It's clear that we've got work to do in the second half. But I think the message is we know what that work is, and we intend to deliver it. The guys gave a fair amount of commentary around what's going to drive that expansion.

And on a profitability standpoint, I think we've made really good stride there. We've done a really good job in controlling costs, in sort of focusing on our organization so that we're simplifying and delivering great services to customers but also being pretty careful on profitability side. So overall, much as we've said, we're on track in all of the elements and expect to deliver on guidance for the full year.

Tax, Andrew?

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Andrew Martin Browne, SES S.A. - CFO [7]

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And on tax, I think we've said, based upon what we've looked at, a range about 25%, 26% or so on the [proxies].

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Michael Bishop, Goldman Sachs Group Inc., Research Division - Equity Analyst [8]

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Do you have any sort of view...

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Steve Collar, SES S.A. - CEO & President [9]

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(inaudible) on -- Michael, I got a feeling we didn't answer a part of your C-band question.

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Michael Bishop, Goldman Sachs Group Inc., Research Division - Equity Analyst [10]

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Yes, exactly. Just on the -- any proceeds going to the FCC on a sort of voluntary basis like the CBA has mentioned?

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Steve Collar, SES S.A. - CEO & President [11]

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Well, look, I think we've -- I think again, we've been pretty consistent from the beginning that we think the economic benefit of rapidly delivering the spectrum into 5G, call it, kind of dwarfs any sort of auction proceeds or sale proceeds. I think the economic value of each year of sort of accelerated delivery of 5 years is measured in the sort of EUR 50 billion range, if you look at sort of commentators on this.

That said, we recognize the concerns of some, and some have expressed that auction proceeds should be -- should accrue to the treasury. And we've indicated we're willing to think about that and address that once it's clear that our proposal is being adopted. So wouldn't comment any further than that other than we have a little ways to go in understanding all of the proposal elements, and we'll be able to comment more on that once the path forward and the situation is further defined.

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Operator [12]

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The next question comes from the line of Nick Dempsey from Barclays.

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Nicholas Michael Edward Dempsey, Barclays Bank PLC, Research Division - Research Analyst [13]

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Yes. So just one question remaining. If you're near the bottom end of your revenue guidance in 2019 for the group, then you need to show about 4% revenue growth to get to the bottom end of your 2020 guidance. In the context of everything you've said this morning, 4% still seems like a very aggressive rebound. Did you give some thoughts of reducing your 2020 guidance at this point, given that -- given the trends you're seeing?

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Steve Collar, SES S.A. - CEO & President [14]

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So Nick, look, I mean we haven't said anything about being the bottom end of the range. That seems to be -- that's obviously something that you're sort of thinking about. We've been pretty consistent on this, right? We've got -- we've delivered a strong first half. We've got good visibility in the second half. We hit the number last year. We intend to do that this year. And I think while we're not going to get into sort of more detail around the specifics of the deals, we closed a good amount of business in the first half, which will reflect through into the second.

With respect to 2020, look, no reason to sort of change or make any commentary on that at this point. Obviously, we're going to look at how we progress through the second half of 2019, what our exit rate looks like and kind of how that projects forward into 2020. But right now, we feel good about 2019 and hitting in all our areas, Video Networks, revenue and EBITDA.

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Operator [15]

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The next question comes from the line of Patrick Wellington from Morgan Stanley.

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Patrick Thomas Wellington, Morgan Stanley, Research Division - MD and Head of the European Media Equity Research [16]

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Yes. I've got 3 questions, and it is maybe traditional. On C-band, Steve, have you got any thoughts on timing? The dictionary definition of the Fall is that the Fall finishes on the 23rd of December. But my feeling is that the FCC looks as though it's going to be ready for report and order before that. So some sort of sense of timing on C-band.

Secondly, just to complete the sort of set of people's worries about C-band proceeds. There's a school of thought that says that Eutelsat and Telesat will turn nasty at the last moment and ask for more than their circa 5% that they're due each. Do you see that as a possibility in the process? There's a bit of shakeup at the end there.

And then thirdly, back on to the business. Actually, a couple of questions. Do you have a -- can you give us some sort of sense of the shape of revenue growth through Q3 and Q4? Will we gradually accelerate faster in Q3 and then even faster in Q4? Or does what you said about the level of contract activity you've got coming through suggests that we should start to see immediate growth benefits?

And very finally, I'm going to come back on your last answer and say it sounds to me like you think you can do better than the bottom end of the guidance. Is that the case?

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Steve Collar, SES S.A. - CEO & President [17]

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That sounds like four questions, to be exact.

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Patrick Thomas Wellington, Morgan Stanley, Research Division - MD and Head of the European Media Equity Research [18]

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That was 4 questions, apologies.

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Steve Collar, SES S.A. - CEO & President [19]

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So look, on the definition of the Fall, I don't think 2 Brits commenting on that is probably going to get us far. I think in terms of timing, look -- I mean what I'm saying is I think this year we'll have clarity. I think that's consistent with everything that we're seeing. You know that the FCC -- the commission is meeting on a monthly basis. And sort of forecasting which of those meetings are the ones we're going to get that clarity I think is -- I'm not -- I don't have that visibility. Clearly, it is in the purview of the FCC. But I definitely do see things accelerating. The recent [TN] is on an accelerated time line, and that's typically what you see when the FCC is looking to complete the record and kind of have some momentum behind drafting a report and order. So definitely see that. I think it'll be this year. Pretty sure it'll be this year based on what we're seeing. But whether it's sort of end Q3, beginning of Q4, end of Q4, I'm honestly not sure.

Look, on the CBA, I have to say I think it's pretty remarkable that we have pretty much complete alignment between the 4 operators and 4 competitors, right? And so I think that's really both remarkable and fleeting and nothing that we've sort of done since the time we formed the CBA, I guess, back -- at the back end of last year has been contentious for anything other than aligned. And so my expectation is that, that will continue.

Shape of revenue. I mean look, we -- I think it's a little different probably on the Network side than on the Video side. I think on the network side, we'll expect to see a sort of step-up in Q3 and then in Q4. We -- if you sort of look at the path for revenues last year, we kind of accelerated through Q3 and Q4. And I think given the shape of the contracts we closed, I think you'd expect the same thing.

On the Video side, I think we traditionally -- and certainly if we look at where we see the revenue coming from this year -- I think Q4 will probably be stronger than Q3. But again, our focus is to try and obviously flow that, as much of it, as early as we possibly can, and that will obviously help us into 2020 and beyond.

And now I didn't write down your fourth question.

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Patrick Thomas Wellington, Morgan Stanley, Research Division - MD and Head of the European Media Equity Research [20]

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Sorry. Better than the bottom end of the guidance. You're clearly indicating better than the bottom end.

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Steve Collar, SES S.A. - CEO & President [21]

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I feel like I've answered that question a few times. But look, we've given a range. We're trying to get ourselves as healthily in that range in all of the areas. And I think what I see, I'm pretty confident that we're going to be in the range. And I'm not going to say anything more than that.

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Operator [22]

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The next question comes from the line of a Giles Thorne from Jefferies.

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Giles Thorne, Jefferies LLC, Research Division - Equity Analyst [23]

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I have 3 questions too, please. The first one was coming back to this question of voluntary proceeds in the C-band situation. Peter Pitsch obviously, very consciously, said what he said when he said that in front of the House subcommittee, and that's a decided shift in the CBA's position. So what I'd be interested to hear is what's on the other side of that quid pro quo. He wouldn't have said that for no reason. So there must have been something else on the other side of that, that you've asked and perhaps secured, be it auction design or something. So any context around why he said that would be very, very useful.

Second question, Mr. Ferd, picking up on the news that SES has been expanding services with Sky Deutschland in Germany, obviously. It'd be useful if you could expand on exactly what you've been doing there. And does this close the gap on any revenue shortfall that emerged post the 2017 contract renewal with Sky Deutschland?

And then another one back to Steve, I guess, coming back to the question of HTS LEO and, specifically, OneWeb. Among others, OneWeb now has its satellites up, and we're starting to see in the public domain some of the data points around performance, speeds and latency in the search lines, which all are rather impressive on paper. It'd be interesting to hear your initial impressions and whether you're seeing anything that changes your view, which, if you'll forgive me, I'm going to interpret as is historically question the legitimacy and the relevancy and the sustainability of HTS LEO. So first impressions of what's coming out of OneWeb's network performance.

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Steve Collar, SES S.A. - CEO & President [24]

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Thanks, Giles. Yes. Look, I mean on the -- again, I don't think I'd say anything much more than I said before on this question of voluntary contribution. Our main benefit -- I think the benefit of what we bring is speed and execution. We know exactly what we have to do to clear the spectrum, and we can do it fast. And I think that's always been the tremendous sort of strength of the CBA proposal and continues to be. But we've recognized that there are concerns out there on -- around auction proceeds accruing to treasury, and we don't want to let that stand in the way. But I would say that we're going to defer any questions on that until we really understand that our proposal represents the path forward. And so we clearly indicated, to your point, a willingness to engage there, but we have to understand more of the details of what the FCC has in mind. And that process continues.

Now this is --- this happened right from the start. We've said that this is a complicated thing to do, to try and balance the needs of all stakeholders as you see what you read what's in the record but also the sort of speculation around it. There's a lot of people involved in this process. And so engaging with those people and making sure that there's a balanced outcome is something that we're pretty focused on. And I feel good about where that sits. I feel good about the fact that we're sort of aligning folks, and we're sort of moving -- it feels like we're moving into a bit of a different phase, and I think that's good. I'm not sure about the...

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Ferdinand Kayser, SES S.A. - CEO of SES Video [25]

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Giles, could you please repeat your question regarding the Sky Germany because we're not sure we got it acoustically.

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Giles Thorne, Jefferies LLC, Research Division - Equity Analyst [26]

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Sorry, let me repeat. I read news that SES or, I guess, MX1 has been expanding services with Sky Deutschland. So I wanted to get a bit more color on that and a sense of the quantum.

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Ferdinand Kayser, SES S.A. - CEO of SES Video [27]

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Yes. So indeed, MX1 has historically been a service provider for video services to Sky Deutschland. And we recently, indeed, concluded another deal, in particular, for all kinds of disaster recovery services to be provided by MX1 in Munich for Sky.

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Steve Collar, SES S.A. - CEO & President [28]

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And then on the LEOs, in general, it's definitely the case, but I've been a skeptic, Giles. But I wouldn't say I'm a basher of LEO in any way, that I'm a skeptic primarily based on business case, right, how can you deploy that amount of capital be so delayed in generating revenue and make a return. It doesn't make too much sense to me, and I'm still there. I don't think anything that I see, in fact, the -- anything that anyone can point me to suggests that that's not the case or suggest that that's a wrong interpretation of what it takes to deliver a sensible return by deploying hundreds and thousands of satellites.

With respect to OneWeb, I still think they've got a long way to go. I lived through a whole bunch of skepticism when we were building out and indeed I'm certainly going to not contribute to that from OneWeb's perspective. But look, having whatever they got, is it 6 satellites up, it's a long way from the hundreds that they need. And I think it's relatively easy to sort of demonstrate performance on 1 or 2 or a handful of satellites. It's a completely different matter when you're trying to deliver sustaining services to customers. So long, long way to go there, Giles. I certainly haven't changed my view on the challenge that delivering services from LEO represents.

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Giles Thorne, Jefferies LLC, Research Division - Equity Analyst [29]

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Thank you. And if you permit me, just -- that was very clear Steve. If you'll permit me, just a quick follow-up on the C-band question. You were up with Chairman Pai in DC on the 16th. I think it was the 16th -- no 18th of July along with Stephen Spengler. And clearly, it was an all principals, all heads meeting. The comments today about being encouraged by the FCC body language, are you happy to explicitly link that comment to your meeting with Pai just a week or so ago?

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Steve Collar, SES S.A. - CEO & President [30]

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Well, look, we follow the next (inaudible) so you can read that. But definitely, the fact that we're now kind of engaged across-the-board, that activity is increasing, that the Chairman has publicly said that he expects to have news on this matter within the next handful of months, all of that point in a good direction, you'd expect. We're engaged with the FCC, not just with the Chairman himself but with the Chairman's office, with other commissioners and with the various different bureaus, and that activity is definitely increasing. And so in my mind, that's all for the good but also very necessary as we really look to bring this whole thing together.

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Operator [31]

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The next question comes from the line of Sami Kassab from Exane BNP Paribas.

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Sami Kassab, Exane BNP Paribas, Research Division - Media Research Director, Co-Head of the European Media Team & Analyst of Media [32]

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First question is on YahLive. Can you please elaborate on the integration of the commercial operations into the Video segment, how much additional revenues will this bring, what is the deal exactly, what's been YahLive revenue growth trends in recent quarters, a little bit more on how much YahLive will contribute to meeting Video guidance revenues this year, please?

Secondly, can you comment on the pricing environment for mobility following the failure of IS-29? Do you think you can increase prices in certain segments of this market, perhaps the North Atlantic IOC?

And lastly, you talked about supporting 4 of the 5 cruise operators. You referred to vessel expansion potential. In order to help me understand how much potential there is there, can you share with us the number of vessels or the share of vessels of these 4 operators that you currently have onboard your infrastructure, please?

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Steve Collar, SES S.A. - CEO & President [33]

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Okay. So on YahLive, this is more about bringing the kind of sales and go-to-market team within SES and sort of aligning it with the rest of our organization and the rest of our go-to-market. Don't expect substantial increases in revenue, and in fact, it's definitely a challenging -- it's challenging. We built a really good neighborhood, a strong neighborhood, but revenue generation is lower than we would expect. And this is part of a drive to both generate more revenue more consistently with the way that we sell all of our other neighborhoods, but also drive cost out of the business, to be kind of be honest.

On the Network questions, JP?

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John-Paul Hemingway, SES S.A. - CEO of SES Networks [34]

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Yes. I'll take the next 2. So on mobility, I think your point around does the failure of IS-29e drive a chance for -- how might I phrase this -- opportunistically raising prices in their sector. I want to say is that our first focus was actually honoring the restoration agreement with Intelsat and making sure that their services were back up. And we have an existing restoration agreement which I am not at liberty to share details around. And outside of that, we pretty much have contracts with all of the major aero service providers already. There's contracts of long-term in nature and have price and volume contract terms within them. So we pretty much honor those terms as well. So no, not really, I didn't see that make a particular impact into pricing in that particular sector.

On the second one related to that in cruise. Yes, obviously, we're very pleased with knocking down more and more of the key logos in the cruise industry, and we do have 4 out of the 5 major [play] activities. I can't share the number of vessels. These are ongoing activities as we add more and more vessels within those. What I will share is that we typically get bought in onto the, as I described earlier, the flagship cruise ships first because that's where they want their absolute premium customer service. Once we've done all those, we tend to go down into these medium and lower end of the cruise ships within those customers. So that's the sort of detail I can probably share there without going into specific numbers of vessels per cruise line.

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Operator [35]

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Thank you. I would now like to hand the conference back to Mr. Whiteing for closing remarks. Please go ahead, sir.

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Richard Whiteing, SES S.A. - VP & Head of IR [36]

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Guys, thank you. I think that's because there are no more questions. Thanks, everyone, for joining, and taking the time this morning. As ever, myself and the rest of the IR team are available if you have any follow-ups.

And with that, I'll say thanks very much and enjoy the summer and have a great holiday. Thanks, and goodbye.

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Operator [37]

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Ladies and gentlemen, that does conclude the conference for today. Thank you all for participating. You may now disconnect.