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Edited Transcript of SESG.PA earnings conference call or presentation 24-Feb-17 9:30am GMT

Thomson Reuters StreetEvents

Full Year 2016 SES SA Earnings Call

London Feb 24, 2017 (Thomson StreetEvents) -- Edited Transcript of SES SA earnings conference call or presentation Friday, February 24, 2017 at 9:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Richard Whiteing

SES SA - General Manager, IR

* Karim Michel Sabbagh

SES SA - President and CEO

* Padraig McCarthy

SES SA - CFO

* Steve Collar

SES SA - CEO, O3b Networks

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Conference Call Participants

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* Laurie Davison

Deutsche Bank - Analyst

* Eliska Mallickova

Morgan Stanley - Analyst

* Sami Kassab

Exane BNP Paribas - Analyst

* Sarah Simon

Berenberg Bank - Analyst

* Giles Thorne

Jefferies - Analyst

* Wilton Fry

Royal Bank of Canada - Analyst

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Presentation

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Richard Whiteing, SES SA - General Manager, IR [1]

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Good morning, ladies and gentlemen. Thank you for joining for the SES full-year 2016 results. I am Richard Whiteing, General Manager for Investor Relations. Let me start by welcoming those of you joining us here in London as well as those joining and listening in via the webcast and the teleconference call. I am joined this morning by Karim Michel Sabbagh, President and CEO, and Padraig McCarthy, CFO.

In a moment, Karim and Padraig will present the key highlights and developments of 2016 and the outlook for 2017. This presentation is available on the investors section of the SES.com website if you do not already have it. As always, I would ask you to take note of the disclaimer at the back of the document. After the presentation, we will take your questions and Steve Collar, CEO of O3b, is joining is by phone should you have any O3b related questions. With that, I would like to hand over to Karim.

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Karim Michel Sabbagh, SES SA - President and CEO [2]

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Thank you, Richard. Good morning, ladies and gentlemen. 2016 was a year of acceleration in executing our strategy, which essentially is about building differentiated capabilities in the four market verticals that we've been focusing on over the past four years.

We were able to execute on plan, deliver a 2.7% growth in reported revenues and, equally important, deliver a total backlog of EUR8.1 billion, which represents a 10% increase versus 2015 and on a same-scope basis a 5% increase, which gives us great visibility into the potential of our business going into the future.

As we were doing this, we were able to demonstrate the solid foundation of the business that we're serving and, as we were doing that, we were able to invest organically in our capabilities, future-proof capabilities and also prosecute selectively accelerators, namely O3b and RR Media during the course of 2016. Equally important to us and to our Board is that we have executed that plan within our financial framework, so being very consistent and very disciplined in how we're investing our capital and making use of the cash.

Let me talk briefly about the four market verticals and Padraig is going to spend a bit more time. Video continues to be the foundation of our business, it contributes 68% to the SES top line and continues to be a very robust foundation, I will talk a bit in more detail on the next slide.

The point that I want to drive is, on a reported basis, video is showing a growth of 4.7%; the foundation continues to be robust and equally important is that we're executing our strategy of differentiating on the existing platforms that we have, growing new platforms international market and bringing in the ancillary services increasingly to the client base that we are serving. Again, I'll be spending a bit more time on that.

Enterprise, which now represents 12% of the SES top line was down by 13% on a reported basis. Since mid-2015 we have repositioned our business in enterprise, so specifically either serving directly enterprises that have the fluid networks across large regions or working very selectively with integrators, with whom we would have a seat at the table working with them and their client and making sure we understand how we're enabling their businesses.

As we're doing this, and as per our earlier discussion, we have delivered the disengage gradually from the tier two market, which is a segment where there is no differentiation and where we've elected not to pursue any further. O3b certainly in that space brings in a very strong accelerator and, therefore, in going into 2017 we have a unique set of capabilities that will enable us to deliver abroad in that particular segment.

Mobility continues to be the highest growth segment in our portfolio, it represents today 6% literally starting from a zero base three years ago. A 95% growth rate and, what is very rewarding for us is that we are able to demonstrate this both in the aeronautical market as well as in the maritime market. When it comes to SES i.e. in our geostationary fleet, we are able to demonstrate this both across aero and maritime, and maritime being a new segment that we started serving in a targeted manner in 2015.

Last but not least, government continues to represent 12% of the market that we're serving. It was down by 6% on a reported basis. It's showing strength during the second half of the year, in fact during the second half of the year our revenue went up by 7% compared to the first half of the year and certainly the foundations now look quite strong. I will leave it to Padraig to talk about the outlook for 2017.

Let me comment a bit on each of the market verticals. Video continues to be a very strong foundation for SES, as you will see over the period 2014, 2016, we've maintained and achieved a low single-digit growth in that particular market segment. This was achieved again by being very focused on what we wanted to do.

First is accelerate the transition from standard definition to high definition, we've achieved a growth nearing 7% during the course of 2016. We are serving today, close to 2,500 HD channels on the SES network. That's the extent of the focus and the success of us executing on that particular strategy. I'm sure you all appreciate that the more successful we are in doing this, the more premiumization we can achieve on the services we are delivering.

Equally important to that conversation is that HD penetration now represents 33% of the total portfolio that we are serving, up from 31% last year. So, one out of three channels literally is in HD. HD+ also our platform in Germany continues to make very strong progress. We have today 2.1 million paying subscribers and continuing to show very strong growth.

Last, but not least, is SES presently, or at the end of 2016 to be correct, is serving or is delivering 21 ultra HD channels up from eight in 2015. Certainly, we continue to build on that traction and, if you remember, one of our objectives in 2016 was to take this capability that we started introducing outside North America and figure out the formula to enable us to offer this to the cable operators and we were successful in doing that. Certainly, now we have the cable to sustain that momentum.

In the international market, we continue to be very selective in how do we want to grow, with whom we want to partner, i.e. in terms of Pay-TV operators and so we are delivering today close to 2,750 channels in the international market. SES-8 and SES-9 were very important accelerators where into a year and a half to two years we have achieved the fill rates that we intended to achieve, certainly on SES-8 and SES-9 is well on that track.

Finally, SES-10 is very well positioned. You will recall that in the case of SES-10 we have placed an existing asset in that neighborhood and we started seeding the neighborhood way ahead of time. In fact, we started seeding that neighborhood back in 2014.

Let me cover two points when it comes to video. One is, central to the SES value proposition is our ability to offer ancillary service across the value chain. Increasingly, that is relevant to the client that we're serving. With the acquisition of RR media and its integration with SES platform services, MX1 today is the world-leading provider of visual media solutions and end user experiences.

To give you an order of magnitude, they carry day-in, day-out, close to 2,750 channels, serving 120 subscription video on demand platforms and broadcasting close to 500 hours of sport content every single day. Talking about sport, because that's one of the most differentiated content that we're delivering on to MX1, these are illustrations of the platforms that they're serving.

So, the English Premier League, the Sky selected sport channels that we're carrying, the recent Eurosport agreement that we have with HD+ and what is very interesting is that Eurosport got the rights on the Olympics and last, but not least, is the NFL, where they have a multi-year agreement and, during this year's Super Bowl, MX1 delivered content in [HD] and virtual reality.

I wish we had time today so we can show you this, we're going to leave this to the Investor Day in June, but it really is beyond goosebumps what these guys have done. Virtual reality NFL game with that particular game makes it special, but that's the capabilities that we really want to bring into the market.

Before I leave video, let me spend a minute or two on our European business, which continues to present a very strong outlook going to the future. We are serving, day in, day out, 150 million households, that is the extent of the business that we have developed over the years, delivering more the 2,650 channels.

What is very important to us is that we're delivering this in a high quality and a most efficient manner; efficient to the tune of less than EUR0.50 on average per month, per household as the cost of distribution. That's the efficiency of the platform that we're delivering in Europe. You have to remember that that platform can deliver SD, HD and ultra HD in the highest quality that we expect and the end viewers would expect.

The growth outlook for Europe continues to be strong also because we have to know that while we are serving the largest part of HD channels, that penetration remains equal to 750 HD channels and so the penetration has moved up significantly from 26% to 29% over the course of 2016. Our thesis is that that level should reach 50% by the end of this decade and therefore that gives us further opportunities to grow our business in that vein.

We also have been first in developing ultra HD in Europe; in fact, if you remember, some of the first announcements SES has put out in terms of commercial channels not private channels, were in Europe. Last, but not least, as we do all of that we're serving day in and day out the IPTV networks that are enabling nearly 30 million households.

So, from the outset, we've had a holistic approach in serving that particular market and we have taken the pieces and applying it, our market will grow in a hybrid environment and we will continue to be successful at the differentiation of our platform and the cost efficiency will give us the kind of visibility that we have demonstrated over the years going to the next decade.

Let me comment very briefly on the element of the Sky announcement recently. So, we were very enthusiastic when Sky launched the Silver Q box last year. If you remember in our discussion, I think I said it was almost like an iPhone moment 2008, because it was one of the first hybrid complete platforms that we have seen that provided a seamless viewer experience. That was our conversation in February last year.

What is very interesting is that this platform has been very successful in the UK and Sky has commented on it, so I am just reiterating what our client have, for our interface, been sharing with us and said publicly, and that success has also enable them now to roll it out in places where it's going to be more efficient to deploy a platform and bring it to the household in an OTT format. That is perfectly complementary to the thesis and to the business that we've been serving and we have seen that model working very well over the years and we would continue to work within that model. In fact, MX1 has been serving subscription video on demand platforms over the years, or OTT platform, and that is perfectly compatible with the thesis that we've been pursuing.

What gives us confidence going forward is the efficiency of our platform to distribute to the largest populations in the most cost-efficient manner and with a sustained quality. That is very important. So, our thesis of a hybrid environment will continue to prevail, our investment will continue to prevail on both tracks and MX1 is the best demonstration of the convergence of that environment.

HD+ have made announcements recently that they're moving into a hybrid environment too, so their platform will be delivered over satellite as well as through OTT and that again is a demonstration of the viability and the (inaudible) of the two elements.

Let me move to enterprise, where we have spent considerable efforts to our work at SES as well as O3b to improve the business mix, so focus on the market where we can differentiate and also expand our value proposition. What you will see through the presentation is that our tier one market segment continues to be stable. We have deliberately taken a decision to disengage from the tier two market and, obviously, O3b has been focused from the outset on the tier one market because of their value proposition and their need to manage network end-to-end. So, going into 2017, we have a formula of mix and capabilities in business.

Now, what is very rewarding to us is we were able to demonstrate the new positioning during the course of 2016, delivering managed services in some of the most challenging geographies and with some of the most demanding clients. Facebook is a case in point, where we developed an end-to-end network to [reach] over our satellite network and all the ancillary services including the management of the data centers. That will continue to be our focus going forward.

Certainly, O3b brings very differentiated capabilities on top of what we have done and so the combination of these two elements are going to give us very strong momentum going into 2017.

Let me comment very briefly on the Facebook value proposition that we are bringing. So, on the one hand, we are able to deploy assets within and serving Facebook in the markets that are present to them. We are able to deploy the terrestrial network that supplies the last mile reached that was important to them working with local partners and, equally important for them, was an end-to-end managed solution. So, we spent a lot of time working with them to define these SLAs, to provide the end-to-end solution including the data centers and that service has been ramping up over the period when we have started serving them.

Let me move to mobility. Mobility has been our strongest, highest growth segment that we've been serving. It's certainly an exciting segment. O3b has created literally a new standard and a new category in the cruise ship market. SES has been quite successful in starting from a zero base and gaining a very significant market share in the aeronautical market and that has been a focus of the team, product managers within SES over the past three years.

That is not just about providing the capacity, there was a lot of work that was done upstream thinking about the different solutions and different layers of the network that will resonate with the different IFC/IFE operators. We took it as especially from the outset that we wanted to work with the top four IFC/IFE partners, because between the four they are serving 80% of the commercial airplanes that are connected and/or that are contracted. So, if we can develop a very close working relationship with them we have, I think, collectively the best opportunity to grow this market and succeed along with our partner.

That has been our approach over the years and during the course of 2016, we've announced agreements with Global Eagle Entertainment, with Gogo, with Panasonic and with Thales. Each one of these agreements at the moment it was announced, it was either the largest in the industry or the largest for this client or literally a business model that didn't exist, which we introduced, Thales being a case in point. We literally customized an asset to the requirements of the aeronautical market; in that case, it was over the Americans.

Equally important is that during the course of 2015 and 2016, we started also introducing as an additional capability, some of our existing assets, assets that were in inclined orbit, because through our experience in the government segment these are very relevant assets from a coverage and augmentation standpoint for mobility.

If you remember, through the initial Pathfinder mission this is where this became very relevant to us, which was awarded to SES. We realized that connectivity to both ways. It's very important, it's complementary to other assets that are being deployed and, during the course of 2015, we were able to develop this into a product that is now part of the portfolio under our mobility approach.

Last but not least is now with the tie-up that we have with O3b, we are increasingly finding the opportunity where we combine these two capabilities together and the immediate application of this would be in the maritime segment.

Now, moving on to how do we think about deploying our capabilities in this market, our approach with each of the four integrators is; one, to bring them on board to our existing (inaudible); b is to develop the future assets and I'm talking (inaudible) back in 2014, we had a lot of input from their end and also considerable commitment, this was SES-14 and SES-15 and now SES-17.

On top of this is bringing into this portfolio the assets, so that we have in inclined orbit that are providing this augmentation capability. With that, today SES is part of serving almost 90% of all commercial airplanes that are connected either partially or fully. That is the extent of the impact that we have in that market.

Now let me move to the government segment. In government, we took a dual approach; one is we have a formidable capability serving the US government on the civilian side and with the Department of Defense, and our thought process back in 2014 is what will it take to expand this capability internationally in selective markets with NATO and NATO alliance countries. That was the first part.

The second part was along our thought process is how do we broaden our capabilities and create a path where we move from just a provider of bandwidth or a provider of managed services. That three-year trajectory took us into 2016 and what we have today is an increasingly solid base in our US government business; b, the opportunity now to serve increasingly governments outside the US and, during the course of 2016, there were two important wins specifically in Europe.

One of them has been publicly announced, which is the AGS system, which is the naval system to connect the UAVs, specifically I think it was the global hub, starting with our existing fleet and moving into SES-16 once SES-16 is launched. That's the kind of success that we were focusing on, how do we replicate this capability knowing very well that the resources, the capabilities, the knowledge that is in the US has to stay in the US for the regulatory and legal reasons.

Having said that, how can we replicate these capabilities outside the US and build an equally competent group. Now, increasingly, this is part of our thought process. In fact, you will recall that in 2015 in some of our discussion, I did mention that SES introduced four market solution centers and these became the last to provide, to develop product and services in each one of the market verticals.

This is a group of experts that is now probably above 50 colleagues who are based across the world and these are communities that are single-mindedly focused on these market verticals. Our intent going into 2017 is that the way we operate, the way we manage our business will be increasingly driven through these four market verticals and that will give us confidence that now all the elements as part of the SES (inaudible) system are aligned to the markets that we serve.

Before I leave the discussion on our results, let me comment a bit on the Trojan program, because this is a very good illustration of what we've been doing. So, Trojan is a program that SES has been serving for a decade. We've been very successful in doing it. In 2015 it came to an end so it was tendered again, but it was tendered with evolved requirement, particularly in terms of managed service. That's pretty much what the client needed and the client in that case was the US Army Intelligence and Security Command, so for all highly sensitive missions.

We won this program one more time. This is a program with the potential of $285 million and what SES is delivering today is access to our global multi-band network and, beyond the bandwidth, what they're doing SES government solution is providing centralized network management and bandwidth management solution. That's a capability that we've been building over the past two years.

So we, as the SES parent company, have been working with SES government solutions to make sure that they bring on board these experts, they build the network centers and the network element to be able to deliver these particular services and, in no time, they were able to stand up these capabilities.

Before I hand over to Padraig, let me say a few words regarding O3b. So, O3b will be increasingly integrated with the SES -- so the O3b capability and the SES capability will be increasingly coming together. This is very important to us because O3b represent, in our thesis, the best model to develop our capabilities for data-centric solutions and specifically a model where we can have the scalability and the flexibility of a distributed network.

Why this is important? Because on the one hand data requirements and data applications are going to go through exponential requirement of band width, one; two, we're going to have peaks of requirement in different regions, in different locations; three is, these evolutions can happen at different speeds, some of them may happen over a course of five years, some of them may happen over a course of two years.

What is important to us is to be able to match all of these requirements at the right time with the right capability. So, we want to make sure that we're not over-deploying capabilities and then they are stuck in a geography, or we are behind the curve and we cannot serve these markets, or we are deploying capabilities and because of the time to market to bring them, with the choices that we've made, in a sense we are not anymore best positioned to serve these requirements.

So, with O3b, what we're able to do is deploy these capabilities, specifically the O3b where they are required across the map, because these beams are fully flexible and deployable, one; the time to market of O3b is half the time to market of the GEO fleet; three, the efficiency of the O3b fleet is multiples of the efficiency of the GEO fleet in general.

So, our thesis from the beginning has been that in terms of deploying a network that will be datacentric, O3b was the path that we selected. We've also deployed datacentric capabilities in our GEO fleet to a hybrid model and we always took a view that these have to be complementary. So O3b gives us this potential to continue to (inaudible) in that thesis, scalable, flexible and distributed network.

That is going to be very important going forward, because the legacy models will simply run into a number of issues that they will not be able to address, so we took that thesis six years ago, right, and now that thesis is coming to bear. O3b literally has a five-year time to market advantage versus any other comparable fleet that we will entertain and was able to demonstrate that.

What is very also important to our thought process is we always took a view that in datacentric application, if we truly serve the thesis that we can enabler to our client businesses and, therefore, as their businesses grow our business will grow with them. So, the phenomenon of elasticity. That hasn't been yet manifested in a consistent manner in the GEO space and we've seen this happening in the environment of the video clients and enterprise.

O3b was on the other end of the spectrum, in fact Steve has reported time and again that X% of their clients have come back and increased their requirement. By the end of 2016 that increase now covers 65% of the O3b clients; i.e. six out of 10 clients came back and scaled up their requirements, being able therefore to demonstrate the elasticity advantage that we've been referring to and also reaffirming the role of O3b as being essential to the client business model. So, as they grew they were able to grow with them.

Now, what is also very relevant to us is that O3b bats exactly in the same market verticals that we're setting our strategy, enterprise, mobility and government. In fact, 2016 was the year where O3b working with SES government solutions were able to introduce this capability to probably some of the most demanding arms of the Department of Defense in the US and that has been a very strong attraction to us. Therefore, Steve and his team, along with SES government solution, are pretty much focused on continuing to grow this thing.

Last, but not least, is we are now very focused to bring into operation all the programs that we have launched over the past three years and so we have a series of launches coming into this year and next year. So, with SES-10, 12, 14, 15 and 16 by the end of this decade, on a steady-state basis, we have the program that can deliver an upside of EUR750 million, combined with our video feed where we have to remember the aid additional O3b supplies that are under production. Last, but not least, is SES-17, which by the end of this decade will be launched and also is expected to create another incremental EUR100 million.

What is very important to us is that each and every one of the assets that we're deploying is serving in a very targeted manner the four market verticals, either fully or partially, and that is part of our very focused strategy. Everything we do has to serve the capability systems that are going to be essential in these four markets. As long as we do that in a very selective manner, we'll be able to achieve the objectives that we've set for ourselves for 2017 onward. With this now Padraig, I'll hand over to you.

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Padraig McCarthy, SES SA - CFO [3]

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Thank you, Karim, and good morning, everybody. So, starting, for the colleagues on the phone, on slide 16 and the financial highlights. These reported results include the consolidation of RR Media from July 6 and O3b from August 1 and same scope results exclude the impact of these two transactions.

Reported revenue was 2.7% higher and was up 2.4% at constant FX. Revenue at same scope and constant FX was 2.7% lower than the prior year. The same scope revenue development reflects the washout of certain legacy items and the second-half revenues grew 5% versus the first half of 2016 and were stable versus the second half of 2015.

Now the reported EBITDA was down 2.9% and the same scope was down 3.5%. The profit of the Group of EUR962.7 million includes a one-off accounting gain of EUR495 million due to the O3b transaction, and I will come back on that. At 3.09 times net debt to EBITDA, we were fully in line with our financial framework after consolidating RR Media and O3b.

As Karim already mentioned, the contract backlog hit another all-time high of EUR8.1 billion, increasing by 10%. Lastly, the Board is reaffirming the commitment to a progressive dividend per share and is proposing a dividend per A share of EUR1.34, representing a total dividend payment increase of approximately 17%.

If we look at revenue in a little bit more detail on slide 17, the 2.7% lower same scope revenues included the legacy items, which represented over 70% of the reduction. Now I think these items are well-known by now, we've covered them may times, but they are foot-noted on the slide just in case. This same scope reduction was well above the floor provided in our third quarter results, which implied a 3.5% reduction versus the actual result of a 2.7% reduction.

Just to give some more color per vertical. Video, which represented 68% of total revenues, continues to grow with a same scope increase of 0.4%. Now revenue developments in Europe remain robust with continued expansion of HD and ultra HD channels, as well as services growth including HD+, which now serves over 2 million paying subscribers.

Over the last three years, the average revenue per transponder in our prime European positions, such as 19.2 east and 28.2 east, has either remained stable or increased slightly. At our main continental European position of 19.2 east, volume has also increased over this period and today we have a current utilization at this principal position of over 90%.

In addition, we see no material change in the length of video contracts; to the contrary, we've seen longer contracts and, looking ahead, European revenues due for renewal in 2017 to 2018 represent approximately 1% of total annual Group revenue and, to the end of the decade, approximately 2% to 3% of annual Group revenue.

All of this underpins the robustness and long-term visibility that we have in this part of the business. Video revenue growth was complemented by the six-month contribution of SES-9, which is ramping up nicely and is at the targeted 30% utilization at this stage.

A few words on enterprise. This represents 12% of total revenue. It decreased 17.8% excluding the legacy items. As Karim outlined, we continue to focus on tier one customers, differentiated managed services and point to multi-point application. These revenues improved in the second half of 2016 compared to the first half. Lower revenue from point-to-point applications was the main driver of the enterprise revenue decline, which now represents 2% of total Group revenue, versus 4% in 2015.

On mobility, we continue to grow with revenue up strongly 67.3% at same scope to 6% of total revenue and now also representing around 15% of the total contract backlog. If we look at the fourth quarter mobility revenues, these benefited from the commercial contract with an important upfront revenue, which will also reoccur in 2017 and, after that, there will be ongoing revenue hereafter from this contact.

Government, which represented 12% of total revenue, was 5.1% lower after adjusting for the timing of the US hosted payloads and here we saw a clear stabilization with second half same scope government revenues some 7% higher than the first half of 2016.

Indeed, as in recent years, other revenue also includes important periodic revenue contributions, which are not directly contributable to any vertical. Going forward, we would expect the annual contribution from the other line to revert to a more normalized level of approximately EUR10 million, at least for modelling purposes.

Same scope revenue is enhanced by the contribution of RR Media and O3b, with RR Media delivering EUR63 million and O3b EUR50 million of revenues and, as already noted by Karim, O3b fully met their target and their revenues for the full-year increased by over 90%.

Turning now to EBITDA on slide 18, same scope EBITDA is down 3.5% due to the lower sales. This was partially offset by lower OpEx, where we saw a 2% reduction in the overall fixed cost base of the Company. The EBITDA margin of 73.7% at same scope was in the midpoint of what we've previously guided and the reported EBITDA margin was 70.2%. This included a positive contribution from both RR Media and O3b, which more than offset the one-off transaction costs.

On slide 19, you see the benefits of SES's reduction in normalized CapEx and that this is now also beginning to show through in the depreciation line. At same scope, depreciation reduced by 4.5% at constant FX. Depreciation includes six months for RR Media and five months for O3b and Group depreciation is set to increase in 2017 with new satellites and extended scope; this will be partially offset by lower annual depreciation for the existing O3b fleet, which will reduce by approximately $40 million.

Slide 20 shows the movement in financing costs from 2015. Now, after adjusting for the higher net foreign exchange gain in 2015, same scope net financing costs were 20% or EUR31.4 million lower. We have also now fully refinanced the entire O3b debt at a one-off cost of EUR21.6 million and this means that we have been able to now secure the annual financial synergies of EUR60 million and these have started in January 2017.

A few quick words on the other P&L items on line 21. Profit of the Group of EUR963 million included the O3b gain and the disposal of a non-controlling interest. This reflects the implied equity value of EUR1.4 billion compared to the EUR0.9 billion paid by SES. The overall effective tax rate was 10%, or 17.7% excluding the non-tax of the O3b gain and the same scope effective tax rate was 15%.

If we move to slide 22, we see the backlog. So, we obviously had strong commercial activity executed across the four verticals. This contributed to a further improvement in the fully protected backlog, which now stands at an historic high of EUR8.1 billion. The backlog grew by 5% at same scope and 10% including future revenue contracted by RR Media and O3b. This also reflects the robustness of our average contract length and business remains at around eight years on a same scope basis since the start of the decade.

Our net debt to EBITDA, on slide 23. The rating agency's metric was 3.09 times at the end of December 2016; with the IFRS metric at 2.65 times. This included the EUR2.2 billion of equity and equity-like financing completed during 2016 and, therefore, we have completed the consolidation of RR Media and O3b and we've done this while fully remaining within our stated financial framework.

Slide 24 shows the free cash flow before financing activities and acquisitions at EUR655 million in 2016. The percentage of 33% was a little bit below 2015, which benefited from upfront payments, but was fully in line with what we've seen since 2012 when we've seen an important step up in this metric.

On slide 25 we provide updated CapEx profile and we've added 2021. Now the first point I would mention is that the overall CapEx in the period 2016 to 2020 has not increased, in fact it declined slightly. And purely what you're seeing here is there's some change due to the timing of launches with CapEx for 2016 over EUR100 million lower than previously expected.

And also over 45% of the CapEx from 2017 to 2021 is currently uncommitted. And the development in CapEx from 2018 includes the benefit of the completion of the 20% normalized CapEx reduction target. You will recall in our investor day we showed that we had already achieved 16%, or over three-quarters of this target and we will be updating in the next investor day where we are at the end of 2016.

Now all of this CapEx profile does not yet include any potential synergies from increasing CapEx efficiency, to a common GEO-MEO technology roadmap.

Turning now to the outlook on slide 26, we've extended our capabilities across the four verticals and significantly improved the business mix and the growth profile. Our target is to generate sustained growth in all four market verticals. This is supported by the improved business mix and the increased visibility from the substantial backlog, which increased to a historic high of EUR8.1 billion.

Now from quarter 1 2017, we will report constant FX growth on a like-for-like basis. This will assume that our media and O3b have been consolidated for all of 2016. And on this basis, we're targeting stable to slight revenue growth across video and government for 2017, complemented by a return to growth in enterprise and strong growth from mobility. Like-for-like growth will ramp up gradually as the year progresses.

SES's future revenue trajectory will benefit from the significant contribution of the ongoing GEO-MEO investment, which Karim has outlined, are expected to generate incremental annualized revenue of up to EUR750 million, a steady state utilization and this refers to the satellites that you've seen earlier that are planned to be launched, the GEO and the MEO ones, between now to the end of 2019.

EBITDA margin on a like-for-like basis is expected to be broadly stable for 2017 and 2018 and rising slightly thereafter, while operating profit margin is expected to significantly improve to more than 40% in the medium term.

Now having built these strong foundations, in the medium term the return on invested capital is expected to significantly increase to over 10% and the key drivers of this, just to wrap up, are delivering growth in all four verticals, supported by operating expense leverage, reduction of normalized CapEx and continued optimization of financing costs.

And on that note, I will now hand back to Karim to wrap up.

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Karim Michel Sabbagh, SES SA - President and CEO [4]

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Thank you, Padraig. So let me conclude on our objectives and I would say my objective is to delivering sustained profitable growth and returns and there are three principles to that.

First is that we will return to growth this year and demonstrate that across the four market verticals. That is our objective, as stated by Padraig earlier.

Two is to demonstrate the sustainable foundation and the strength of our foundation across the four businesses. So not just from a top line, but also differentiated capabilities. And in doing this we will be able to serve our thesis, which is that we will grow if we can differentiate and that differentiation can help us serve our objective of delivering sustainable profitability across all parts of our business.

Now differentiation means -- and essentially this means that we will have to continue to double down on scaling up our capabilities in the four market verticals. We will continue to do that in an organic manner, as some of the examples that I've mentioned to you. There may be selective accelerators going forward, but these are going to be very selective over the next four to five years.

And equally important is that we will align increasingly the operating model of SES and our management to the four markets that we are serving. And again, the introduction of the [MSC] and the experience of O3b has been a phenomenal launch pad and fast track mechanism for us to move the entire operating model of SES towards a direction which will enable us to do two things, one, better serve each one of the four market verticals and, two, is being able to do that more efficiently.

And as we do this, we will be able to further align the way we are assigning capital and using our cash to serve our shareholders and our business. So, one, is that the strong operating cash flow will continue to fund our investments in the business, two, is that we reiterate our commitment to a progressive dividend per share approach. And last but not least is that all the organic and selected accelerators that we will pursue will be done within our financial framework.

And on this note, Richard, I hand over back to you.

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Questions and Answers

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Richard Whiteing, SES SA - General Manager, IR [1]

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Thank you, Karim. So if I can just ask -- we'll start by taking questions in the room and if I can just ask kindly for you to wait for a microphone. And maybe the first one to Laurie.

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Laurie Davison, Deutsche Bank - Analyst [2]

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Thank you very much, it's Laurie here from Deutsche Bank. The first question is if we look at your video slide, you're on the same scope, your video growth has not grown in 2016. It was 1% for 2015, it was 3% to 4% historically. So why is this not growing, if you're saying that the TV channel count is going up, you've got more HD channels, you've got more ultra HD? And what was the SES-9 (technical difficulty) within that as well?

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Padraig McCarthy, SES SA - CFO [3]

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Yes, thank you, Laurie. So first of all, there is growth in same scope. Maybe it doesn't come out too well in the chart, but you see EUR1,327 million, EUR1,337 million, EUR1,342 million. We had growth of 0.4% in same scope in 2016.

The dynamics that are at play there is on one side we continue to grow our HD penetration. We also see a step up from growth because of the 21 commercial ultra HD channels. We continue to grow in emerging markets and now for SES-9, which came into service in the middle of the year with about 30% of the capacity contracted, which ramped up evenly.

We continue also to see growth in the services business, where HD+ now today serves over 2 million paying households. And as I said, the European video business is very robust and that point, Laurie, we've seen pricing being stable or slightly increasing and there's been no exceptions to that development during 2016.

And so on the other side of the equation, we also have the transition from [impact] 2 to impact 4 and on the transition from impact 2 to impact 4, there is less capacity required there, but from that point of view we're already over 60%. And the last element to take into account, when you speak about the growth in channel, is just recognizing that the average price per transponder in the international market is at a lower level than in the developed market and there is quite strong growth in the international market.

So as I've explained many times, we structure our CapEx in our business there so that all delivers the same return on invested capital. So it's ultra HD, it's HD, it's the growth services, very robust European business, growth in emerging markets and then on the other side, we're very advanced on the impact 2 to impact 4 compression.

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Laurie Davison, Deutsche Bank - Analyst [4]

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Okay, but just to be clear here, what is that number if we took constant FX, there's going to be no growth there? Just to go back, what was the SES-9 capacity contribution? Because all those factors you've highlighted are contributing to effectively no growth.

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Padraig McCarthy, SES SA - CFO [5]

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No, because the growth is 0.4%, Laurie. There's capacity comes in and there's capacity comes out. And I think overall what you have to look at is that this business has been growing over the last three years and it's been growing also when there's a minimum amount of capacity going into it. And the positive factors I've outlined and you have to see all that also in the fact that we are now on the other side of the pendulum when it comes to compression, which would have been the element which would have been going against the growth factor.

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Laurie Davison, Deutsche Bank - Analyst [6]

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Sorry, just to be absolutely clear here, the 0.4%, what is that on constant FX?

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Padraig McCarthy, SES SA - CFO [7]

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Yes, that's constant FX, sure, that's constant FX.

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Laurie Davison, Deutsche Bank - Analyst [8]

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0.4% is, because that says it is on the -- 0.4% is as it is on the slide, which is as reported.

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Padraig McCarthy, SES SA - CFO [9]

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The 0.4% increase is same scope constant FX.

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Laurie Davison, Deutsche Bank - Analyst [10]

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Okay, so it does include SES-9, but we just haven't got a number for how much that --

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Padraig McCarthy, SES SA - CFO [11]

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Correct. We don't give individual numbers for satellite, but as I mentioned, it's very easy to work it out. It's a ramp up gradually in the second half of the year of 30% of the capacity, which had 53 additional transponders.

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Laurie Davison, Deutsche Bank - Analyst [12]

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And then the second question is just on your outlook for 2017. When you're talking about slight growth in video, how much of that is from RR Media and the new launches -- new launching pad?

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Padraig McCarthy, SES SA - CFO [13]

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We don't really look at the growth in terms of say how much of it is from the service company, how much of it is from an infrastructure company. When you look at the business today, we're providing an overall customer solution and what we see more and more is that the services businesses are enablers for the growth of transponder capacity.

I think the important message is that we are saying that the video business will continue to show slight growth, or to remain stable and driven by all the factors that I've outlined.

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Laurie Davison, Deutsche Bank - Analyst [14]

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And then the very last question I have, this is the third, you mentioned you haven't put into your guidance GEO and MEO synergies. Can you just help us with thinking about the quantification of those?

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Karim Michel Sabbagh, SES SA - President and CEO [15]

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Well, I talk about the thesis and the concept and less about the quantification. First, the first manifestation of the synergy has been realized and will continue to be realized through the financial synergies over the course of 2016 and 2017. And I think that we have covered these this week in an earlier briefing.

There are now increasing synergies that we're seeing in terms of business generation, so on the revenue line and that is manifested in the three market verticals, enterprise, mobility and government.

And the third very promising synergy that we're seeing now is our ability to think through the deployment of the future feed, particularly the feed that will serve the data-centric market, in a manner where as opposed to replacing existing GEO program, we can move straight into a MEO generation. And therefore, we will be able to bring into use assets from certain markets more efficient from throughput and cost efficiency, i.e. the cost of delivering that throughput, whatever the unit is. And not having to replace this with a GEO type of asset, that may not be best positioned going forward.

And some of these considerations have already started during the course of 2016. We could not consider that pre the acquisition, now we're in a position where we are 100% owners of O3b and with O3b working together, these are not single sided discussions, us saying how do we best serve this enterprise, this mobility, this government solution going forward.

There are going to be further synergies on how do we deploy our CapEx, which means that we may be in a position where we will have to deploy a lower number of spacecraft going forward, GEO spacecraft. Or we'll be able to deploy spacecraft that are much more performing, so the return on the investment will be much more accretive to us.

And that, we're in the middle of this particular integration, and Laurie, you'll remember that one of the things that I talked about and I think Steve talked about, is -- and Martin particularly, I think, over on the Investor Day, is we're working very closely with our industrial partners to make sure that we're creating platforms that can work across the GEO and MEO field and we're well advanced on that particular plan. I hope this is useful.

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Laurie Davison, Deutsche Bank - Analyst [16]

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Thank you.

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Eliska Mallickova, Morgan Stanley - Analyst [17]

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Thank you, hi, it's Eliska Mallickova from Morgan Stanley. Just a quick question on your revenue guidance, could you give us some color on how enterprise is doing maybe outside of O3b? So excluding the point-to-point which is now just 2% to 3% of your revenues. What are the underlying trends in that business?

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Padraig McCarthy, SES SA - CFO [18]

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Sure, so we saw good stabilization in the second half of the year, as I mentioned in the presentation, in what we call the tier one revenue. And in fact we saw that these revenues, second half compared to first half, increased in a mid-single digit level. So we've seen that business is trending absolutely in the right direction and as you quite rightly said, on the tier two business, that now is also stabilized at around 2% [inaudible 54:50].

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Eliska Mallickova, Morgan Stanley - Analyst [19]

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Great, thank you. And just on the cost and since some of your peers are able to see recovery in margins and maybe putting through some cost improvements. Outside of the dilution of O3b and RR Media and the services business, do you think there could still be some room for you to do something on the cost beyond maybe for the underlying business, beyond O3b and RR Media?

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Padraig McCarthy, SES SA - CFO [20]

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Sure, I think the management of cost is a perpetual and continuous activity. And in 2016, for the overall fixed cost of the Company, we reduced that by 2%. But of course, as we go forward, we continue to have the normal business of -- our normal philosophy is to drive down fixed costs every year. And then on top of that, we have the opportunity of looking at how to most effectively go to market and also continue to look for synergies as we scale up.

Remember in the business and also for O3b, remember that the fixed cost base -- you have a certain fixed cost base and then as you leverage the business, you're getting a lot of leverage off of that fixed cost base. So it's about leveraging the fixed cost base, but it's also about continuing to reduce the fixed cost base and making sure that we're really focusing on reducing what we call the bad costs and at the same time, that we're investing in the good cost.

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Eliska Mallickova, Morgan Stanley - Analyst [21]

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Thank you.

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Sami Kassab, Exane BNP Paribas - Analyst [22]

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Thank you, Sami Kassab at Exane, I have two questions please. First, you argued that legacy items were part of the explanation as to why revenues declined in 2016 versus 2015. How much of legacy items do you have going into 2017? The same as the old one, or new, other type of legacy item.

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Padraig McCarthy, SES SA - CFO [23]

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Yes, so these legacy items will have washed out during 2016, so none of those remain. And the only other factor, and I think I mentioned that, is that we also had around EUR40 million of other revenue. This is from the -- we use our fleet, we used our inclined orbits, we have info-mission, very, very strong here, there. And that's the business where going forward we were talking about EUR10 million.

But what we've seen in recent years is that's also tended to surprise to the upside. So I wouldn't look at legacy items, but you should consider that there is quite a high other revenue in 2016 and that the normalized model of that is around EUR10 million going forward.

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Sami Kassab, Exane BNP Paribas - Analyst [24]

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Thank you and secondly, can you comment on the government outlook with stable-ish revenues for 2017, after the stronger second half?

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Karim Michel Sabbagh, SES SA - President and CEO [25]

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The short answer is yes, we've seen a nice stabilization and going into 2017, that is the plan. The upside for SES is that we made the decision early on to deploy or replicate these capabilities and deploy them internationally, specifically in Europe and we're seeing now the payoff of this.

Many of the very significant contracts, specifically the two that I was referring to earlier, while they were signed in 2015, start taking effect, or come into effect 2017 onwards, these are multi-year contracts. AGS was one of those announcements that was made during the fourth quarter.

So the short answer would be one of -- considering that the US government business will stabilize, at the same time there are going to be growth dynamics in this particular business because increasingly O3b and SES government solutions will be working together. So there won't be a split between this; they will be joined in prosecuting that business as we started doing in Q4, so that is one.

And two is the expansion of our capabilities outside the US government. In fact, I think we have the number in our presentation and the press release we're serving today, 62 distinct clients in that particular category. And we're making sure that we have the capabilities required to do this.

And do appreciate that we stood up and invested in these capabilities in a cost-neutral manner, which goes back to what Padraig said, is we were very careful in making sure that we eliminate what our CFO likes to refer to as bad cost. And we were able to redeploy some of this gain into the new areas that in our thesis were accretive to our depreciation.

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Padraig McCarthy, SES SA - CFO [26]

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Thank you.

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Sarah Simon, Berenberg Bank - Analyst [27]

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Sarah Simon from Berenberg, three questions please. Just on video, you talked about accelerating growth beyond nearer term to stable. Is that related to new capacity, or is that more about the fact that you say you're over the hump or the impact 4 or that's the drag?

And just on video, is the way we should think about this as a stable-ish kind of business in terms of revenue and EBITDA, but with materially reducing CapEx. So the cash flow growth that's then funding the higher growth. That's the first question.

The second one was on this CapEx slide here, there's obviously a very -- there's a lot of purple and much less committed. When do you need to start really spending on replace -- or rather how much of that purple is incremental capacity rather than replacing what you've got?

And then the third question is just back on the backlog, how much of that backlog is video? Can you tell us what the average duration of those or remaining duration of the video?

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Padraig McCarthy, SES SA - CFO [28]

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Okay, thank you, Sarah. So on the first one the answer is yes, the video business will continue to be very cash accretive and growth coming indeed from the fact, as I said, in responding to Laurie, the fact that we're at the other side of the pendulum on the compression. Whereas with the launch profile, we do have additional capacity going up on SES-10/ We have some additional revenue opportunity in SES-11, with SES-14, with SES-15, so we also have got some extra (technical difficulty) capacity there.

And then on the other hand, of course, the normalized CapEx reduction, you see it in the numbers now. You see the big reduction is depreciation. This is all helping to have a more efficient cost per transponder, which also benefits very much the profile of the video business.

On the question -- just moving to the question on the CapEx, on the question on the CapEx, there's 45% of this CapEx which is as of this point in time uncommitted. And [Ralph] is the expert here, but my recollection is that it's about 50/50 between growth and replacement. And as you know, in the replacement cycle, the replacement cycle is predominantly a cycle which starts towards the end of the program here.

And there was a third -- did I answer your second one?

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Richard Whiteing, SES SA - General Manager, IR [29]

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It was the backlog.

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Padraig McCarthy, SES SA - CFO [30]

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Yes, on the backlog, on the backlog the -- yes, so video is representing today approximately 73% of the overall backlog. And as I said in my presentation, we're seeing the video contracts and also the contracts that are coming up for renewal, either being renewed at the same length, or in a longer period. We're not seeing a demand in the market to move to shorter-term renewals.

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Sarah Simon, Berenberg Bank - Analyst [31]

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(Inaudible question - microphone inaccessible)

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Padraig McCarthy, SES SA - CFO [32]

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Well, it's more than the average, yes, it's more than the average. And as you know, we've always said for many years that the standard length of a video contract is 15 years. But the trend that we've seen is that -- as Karim outlined earlier, this is a fantastic infrastructure that gives you enormous [technical] reach at a cost of serving a household of EUR0.50. And therefore, when our customers are looking for renewals, there's a great value to have the long-term security of the access to that infrastructure. And that we've seen reflected in renewals, but the tendency is to also look potentially at longer contracts.

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Karim Michel Sabbagh, SES SA - President and CEO [33]

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What has been interesting for us is our ability also to execute that same discipline in the new growing segments, specifically in mobility, where the average backlog is longer than the eight years we have been referring to. So this is one.

And two, in some of the larger government contracts, where we have to deploy a platform with our client, and that platform will require a very significant lead time, the commitments are also quite significant. We're talking about a decade-plus in some of these cases and these are some of the largest agreements that we have, which is a significant departure from some of the practices that we've seen during the sequester years, where you're awarded a contract, it may be for multiple years, but effectively it works year by year, i.e. at the end of every year you have a gate whether it is renewed or not. It's largely renewed, but in that case it doesn't show in our backlog and that's why we talk about fully protected.

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Padraig McCarthy, SES SA - CFO [34]

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And actually on the fully protected, just to remind everyone that the way we measure backlog is that this is the backlog which is contractually fully secured. Now in the government business and for the US government, as everybody knows, quite often the contract, the framework contract's there for five years, or for four years or for five years but from a government budget point of view, they're only renewed annually.

So in our case, we're only taking the one year in that backlog, even though the reality is those contracts last much longer. And if you move from the fully protected backlog, what we call a net backlog, to the gross backlog which is also used in other areas, we are conservative, you add over EUR1 billion to the number we published today.

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Karim Michel Sabbagh, SES SA - President and CEO [35]

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So the thesis going forward is if we can truly differentiate and create these platforms, the platform will create greater stickiness, even in enterprise. And we're seeing this in some of the areas that (inaudible).

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Padraig McCarthy, SES SA - CFO [36]

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I think there was a question up here.

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Unidentified Audience Member [37]

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Thanks very much, just two questions please. Firstly, I'm just thinking about the stable EBITDA margins for 2017 and 2018. Is it correct to characterize that as some margin dilution, given the mix of revenue growth is changing and then cost cutting to get back to stable revenues? Or should we think about it as the mix of revenue growth is margin neutral and then any cost cutting would be in excess and therefore, you might have some upside to margin?

And secondly, just to come back on the other CapEx slide that's up at the moment, thinking back to the Investor Day, there was a slide with 2022 CapEx of EUR555 million and you have mentioned that you're not including the GEO-MEO potentials of synergies. But are there any other moving parts between that EUR555 million potentially in 2022 and the fact that you've gone up to EUR610 million in 2021?

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Padraig McCarthy, SES SA - CFO [38]

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Yes, so on the second question, just a quick one. If I recall, in the INVESTOR DAY we were providing guidance around what we call normalized CapEx. I think the figure you're mentioning, I think, is closer to the normalized CapEx. What we're looking at here, to be clear, is not the normalized CapEx. So what we're looking at here is according to our internal projections, what's the absolute amount of CapEx being spent. So if there are any scope changes outside of the normalized CapEx, that's in here as well.

Now in the Investor Day we said the 18% -- 20% normalized CapEx reduction for the end of 2018 fully on track on that, we'll probably be there earlier. But then you'll also recall we said between 2018 and 2022, we have another 15% to 20% reduction normalized CapEx and that's also before we bring in the GEO-MEO fleet synergization. And so all that's consistent with these numbers, the difference is that we're not showing in 2021 the normalized CapEx there, we're showing more where the eventual CapEx will go, which may also include scope increase.

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Unidentified Audience Member [39]

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If you were to extract that and go beyond 2022, then the implication would be that potentially the CapEx could be lower than EUR555 million. I think it's a follow on from--

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Padraig McCarthy, SES SA - CFO [40]

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Yes, yes--

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Unidentified Audience Member [41]

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--when you actually get replacement CapEx picking that back up

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Padraig McCarthy, SES SA - CFO [42]

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Yes, absolutely.

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Karim Michel Sabbagh, SES SA - President and CEO [43]

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For two reasons, one is because we're working with our industrial partners to produce the future satellite in a more cost efficient manner, so either time to market, two is the platforms and the digital equipment that we're deploying. And I think that Martin, our CTO, gave a phenomenal demonstration during the Investor Day.

Just by moving from today's processing capability to fully digitized processing capability, you're taking literally on this particular element, half of the weight if not more. So that already gives an order of magnitude of where we want to go. Plus, I think, we'll have a unique position, as mentioned earlier, to decide what is the best way to deploy these assets in GEO or in MEO to serve the data-centric application. So there are going to be multiple opportunities for us to think about the number that is lower than what has been indicated.

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Padraig McCarthy, SES SA - CFO [44]

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Yes and on the EBITDA margin, what we're seeing on the EBITDA margin is indeed, as you said, that there's -- as we introduce more and more customer solutions, there's mixed impact. Now I want to stress that the return on invested capital that we're generating today on our services activities is in the teens. And that's after those businesses paid pay normal market rates for the transponder capacity.

So those services businesses are highly accretive to the overall return on invested capital, which is why, by the way, in our outlook, you see that we're also speaking about return on invested capital. Because there are so many things that are going on in our business below the EBITDA line, EBITDA is very important but you miss the full picture. And as you go below the EBITDA line, those businesses need very little CapEx and we've just been discussing very important reduction in normalized CapEx.

On the cost cutting, in general the term cost cutting I don't like, because to me it's all about cost management. And it's not like you spend money you shouldn't spend and then you come every couple of years and say here, I'm cutting costs. So for us, it's continuous obsession in reducing the OpEx.

I think if you look at our numbers on infrastructure over the last four to five years, we've had a negative CAGR of, I think, about 2% to 3%, while at the same time we significantly grew the business. And it's also about value. What we've done in (inaudible) within the last two to three years is that we've increased the amount of salespeople and the presence we have in all the emerging markets by 250%, while at the same time reducing the costs.

So the margin is a function of the mix, but the margin is very important indeed, but you have to look at what's happening at return on invested capital. And it's about continuously managing our decisions about where we want to invest and that's how we look at the OpEx and continuing to get synergies there, including the ones we get from scale, but also the ones we get from daily business.

I run the vendor management activity for non-satellite activities across the Group, about a EUR300 million year-over-year spend and every year we're getting a couple of percent out of that. That's CapEx and non-satellite CapEx. So cost management is very important for our business.

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Unidentified Audience Member [45]

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Okay, just a quick follow-on, just if I was to push on what medium term means in terms of getting over the 10% ROIC.

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Padraig McCarthy, SES SA - CFO [46]

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Yes, so medium term for us would be as you get towards the end of the decade. Where we are seeing that is from the like-for-like point of view, because we've been investing heavily to position our business in a very good position today, because we've a very strong business mix, we've a very good growth profile, we've grown (inaudible).

So our return on invested capital today is marginally above out WACC. That's where we are at this point of time. And the drivers for driving that forward will be the increase in revenues, with the growth in all the verticals.

The OpEx question you just asked is very important as well, because as you increase your revenues we have the OpEx leverage. The normalized CapEx and finally, the financing cost. Let's not forget the financing cost, because in addition to the O3b synergies, we have quite important maturity profiles coming up which are very steady, because our Treasurer manages everything steady maturity. And there we also have quite important opportunities going forward as to how to deal with the financing costs, which are part of the O3b refinancing, which is very material. We haven't had a lot of the core business coming up for renewal. So all of this is looking for us going into double digit territory as we move on towards the end of the decade.

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Karim Michel Sabbagh, SES SA - President and CEO [47]

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But more philosophically, because this question came up a number of times, how do we think about our operating investment. So every I would say January, February, we sit together and we reconfirm the principle of our financial framework. And we've introduced this concept, I remember vividly, three years ago.

And this becomes the framework to which we think about our investment, whether they're capital or operational investment. And it's the platform that we use to align also with the Board of Directors, but also with the 2,000 members of the SES community. So it's a very transparent tool.

And so that is more important to us, to make sure that everyone understands what the principle of investments are and that this is not just the one man agenda of the CFO. Because this is going to be more sustainable and successful going forward and operational optimization has been at the heart of what we are doing. We haven't necessarily communicated all that we have done internally to realign the capability, but adding the full-time equivalent that Padraig is referring to in a cost-neutral manner, and making sure that the entire community remains committed to what we are doing, has been a phenomenal achievement over the past two to three years.

And we expect further alignment as the one that I've described and further efficiencies going forward in 2017. We started with one which then was the integration between SES platform services and RR Media and that will continue to generate synergies during the course of this year. And I think the closer tie-up now between SES and O3b is going to be another [platform].

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Giles Thorne, Jefferies - Analyst [48]

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Giles Thorne from Jefferies, I have three questions please. The first one was on O3b, so hopefully Steve is still on the line. Steve, I think it was back in 2015 that you first (inaudible) and then in the past few months we've had a bit more color provided, not least an interview you did just in the past week or so.

And within that interview you teased the idea of quite a pickup in the size of the O3b constellation, not just more satellites for the equatorial plane, but also to move into a very inclined orbit. And since we've heard that O3b is all about being scalable, is this moving to an inclined orbit going to take us on a departure into essentially completely new applications, or is it going to be more of the same? So that's the first question.

The second question is on video and just to try and get to really the heart of the issue, a much more philosophical question. In your industry and in your developed video market, when you have a customer who's created a huge amount of economic value, servicing an end user through a pipe that you own, suddenly starts to service that same end user with the same product and at the same price but via an additional pipe, do we see an economic leakage from one to the other? Or does your positioning or aspects of your asset base or whatever it is about you, does that allow you to stick to your guns and retain all the economic value that you've created in your particular channel of that value chain? Because this is something I don't think has truly been stress tested yet and no doubt will be more and more in time. So a question around economic leakage.

And then the third question was just with stuff like 2017 around the corner, there's been -- well you've been previously linked to doing a global high throughput system into Ka, we've now seen one of those come about but no comment on any others. And it's been suggested that perhaps you're stepping away from that idea and generally all the industry is being much, much more cautious about incremental CapEx into HTS systems. So with stuff like 2017 two weeks ago, would you like to set the tone for that conversation?

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Padraig McCarthy, SES SA - CFO [49]

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Maybe just on the last one, you've seen in our business model always it's about -- it's not about -- and our CTO will kill me, but I'll take the risk -- it's not only about the technology. The technology is very, very important, but it's about the customer solution and having the optimum technology but a customer solution. And in particular, it's about also having the anchor customers.

And I think you've seen in our business that whenever it comes to technology, we either take a very prudent measured approach, as we did with O3b, or we have very important anchor customers and business when we invest. And we sign those customer contracts before we sign the CapEx contracts.

And with regard to the technology we have today, we have the HTS payloads coming up, we have the O3b constellation with (inaudible) satellite going to be launched and we have the GEO programs that we've been speaking about earlier. So we already have a very, very attractive offering with very good anchor customers on. And I'd maybe suggest Steve talk about O3b next.

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Steve Collar, SES SA - CEO, O3b Networks [50]

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Yes, so Giles, we've spoken about this on a number of occasions and including on the investment day. Look, O3b was designed right from the very beginning to be an extremely scalable network, one that you could build out as demand developed. And that's exactly what we saw with the incremental order of the eight satellites. But as our satellite constellation becomes full, we can order incrementally and it's a very efficient way of doing it.

And it kind of is counterpoised with the LEO systems, where you really have to build the entire network day one and invest all of the money upfront before you're generating a single dollar of revenue. And so from that standpoint, we certainly feel that we have the best fundamentals with respect to launching a network which is right sized at the beginning and then developing that network over time.

It's also true that we secured some very valuable and very prime location spectrum at the most efficient orbital location, or the most efficient orbit from a non-GEO stationary standpoint. And that enables us to deliver lower capital cost per megabit to orbit than any other systems.

And those fundamentals are very important to O3b as a standalone business, but when you then put that in the context of SES and the GEO overlay that we now have for data solutions, I think it gives us a better platform to deliver services, both now and in the future, than any other business.

And in terms of what comes beyond the eight, yes, of course we're working on plans and we're working on concepts for how we can deliver even higher costs per mega -- or lower costs per megabit, higher capability and provide highly differentiated services.

To answer the last point about inclined, I wouldn't say that it's a high, high priority for us today. I think the combination of our MEO orbit and our GEO orbits will be the first point of call when it comes to global networks for maritime and aero and so on. But we certainly have the option to go inclined and it's something that's certainly in the roadmap.

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Karim Michel Sabbagh, SES SA - President and CEO [51]

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Thank you, Steve. I'll go back to the question about video. And so the answer to economic leakage is whether you differentiate it or not and if you remember in my summary slide, the third bullet point was if you subscribe to the thesis that depreciation drives the premiumization and the value of what you're commercializing, then you're going to be in a good place, provided that you have that differentiation.

And we have it in the case of video, because what our network is delivering is the coverage, the scale, the quality of the end product or the end user experience, the reach and the unsurpassed economics. We have to go back to this, there isn't a single universal distribution network like the one we have that can deliver with the same economy. Think about it in Europe, less than EUR0.50 per month on average as cost of distribution.

Now if you're doing this through alternative linear, non-linear, as opposed to having a flat cost that effectively you are amortizing on a large user base, you're pretty much moving on a linear scale. And that linear scale pretty much has a cutoff point that is multiples of tens of thousands of viewers.

Having said that, we need to see the two as being complementary and complementary not living in two different worlds; living in fact in the same state. And again, I reaffirm my enthusiasm for the (inaudible) when it was launched initially, because it really brought to bear all these capabilities together. All the advantages of linear distribution over satellite, the terrestrial access, remember the (inaudible) that they've had.

We had a demonstration on this early on and we felt generally that this was the future going forward. And so as long as we're differentiating that ecosystem, then I think that mutes the economic leakage. And you have therefore, to be obsessed about how you continue to differentiate, hence our drive to HD, ultra HD.

I don't want to start talking about a new segment, but MX1 surprised us during the NFL with virtual reality, but it's too early. So let's not be too carried ahead, but that's something we should see.

So we're pretty comfortable as to how this is going to play out. And there are going to be segments that cannot be reached with the solution that we're providing in the most cost efficient manner and there has to be an alternative (inaudible) to this and we are very comfortable with this. And again, I would like to appreciate that part of the MX1 world, so ex SPS platform services and ex RR Media we're already [adding] that domain and we're quite successful.

And I move to the second -- the last point, which is what is our philosophy and at the cost of sounding like a broken record, if you want to think about how do you want to deploy our networks going forward, they have to be capability driven. So what capabilities are they serving in the market and for video, for enterprise or mobility and for government, there may be a common connecting thread, but our thesis I think increasingly on the same spacecraft, we will have to have capabilities that serve in a differentiated manner these.

So we started deploying this kind of flexibility on our geostationary feed, some of our spacecraft like SES 12 operates in multiple bands in wide beam and in the narrower high power beam, so HTS. SES 14 has similar comparable capabilities in that way, so we started with the hybrid approach and that, I think, has been quite successful for us. We will continue to use it selectively, but increasingly, as we move into data-centric application, it's going to be about the scalable flexible distributed network.

The network has to be distributed. If we cannot do that, then we're going to fall into some of the -- we're going to run into some of the pitfalls that we're seeing today with the global fleet that has been deployed for designed six, seven years ago and are being deployed as we speak. So that distributed network concept is essential to our [unclear 84:46]. Is that helpful?

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Richard Whiteing, SES SA - General Manager, IR [52]

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I think we maybe just have enough time for one question on the conference call.

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Operator [53]

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And we will take our first question from Wilton Fry from Royal Bank of Canada. Please go ahead.

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Wilton Fry, Royal Bank of Canada - Analyst [54]

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Yes, hi there, gentlemen. Earlier this week, Charlie Ergen said he thought it was inevitable that OTT becomes a direct replacement for cable and satellite. Obviously, we've also seen Sky talk about the ability to take significant stack costs out by using broadband only. Given the yield on your regular [2043] bonds has blown out, should we be assuming you'll only be looking at shorter-term duration instruments from now on? Thanks.

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Padraig McCarthy, SES SA - CFO [55]

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So Wilton, there's no correlation between what Charlie Ergen and the maturity on our bonds, that's the first point I'd like to make. And just to remind you of our financial framework and our treasury roadmap, we have a very consistent treasury roadmap. We work off of three or four principles which will continue to prevail.

One is we're a long-term business and therefore, we've worked over the last two to three years to increase the overall maturity of our senior debt such that it's now around eight years. We did that, while at the same time reducing the average cost of our debt, to 3.87% today.

Secondly, we keep a good mix between dollar-denominated debt and euro-denominated debt, so that we matched it with our dollar-denominated EBITDA and euro-denominated EBITDA. And you'll see when you look at our balance sheet that that's worked very much to our favor, with a very important addition of about a EUR0.25 billion shareholders' equity through good FX management.

And then the last point, as I mentioned earlier, is we keep our maturities on a steady state, so that we have at all times also very good liquidity and very good facilities we have in place and a steady state maturity. And there's no change in any of that capacity.

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Richard Whiteing, SES SA - General Manager, IR [56]

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I think on that note, that's probably a good time to close out. So thank you, everyone, for again joining us in the room and also those listening via the webcast and the conference call. As always, myself and the team remain at your disposal, should you need any follow-up later. Thank you very much.