2018 / 2019 UNIVERSAL REGISTRATION DOCUMENT EUTELSAT COMMUNICATIONS CREATING SPACE FOR YOUR COMMUNICATIONS
Every day, Eutelsat demonstrates its expertise as a satellite company which contributes essential resources supporting the growth of digital communications. As a player at the heart of the video and broadband markets, the greatest advances are yet to come. Ongoing progress brings with it the prospect of an increased role for satellites in order to optimise the use of spectrum, a valuable and finite resource, and to transform the digital society into an environment of economic and social benefit for all. With these goals in mind, our Group is pursuing a development strategy based on investment and innovation, operational excellence and the creation of lasting value.
> 30 years ~1,000 of Eutelsat employees Communications € M 1,321 37 (1) revenues for 2018-19 satellites operated
(1) At 30 June 2019. CONTENTS
LETTER FROM RODOLPHE BELMER, CHIEF EXECUTIVE OFFICER 02 LETTER FROM DOMINIQUE D’HINNIN, CHAIRMAN OF THE BOARD OF DIRECTORS 04
PRESENTATION OF EUTELSAT REGULATION 115 01 COMMUNICATIONS 05 05 5.1 Regulations governing frequency 1.1 Highlights of the financial year, assignments and international outlook and key figures 06 coordination 116 1.2 Group activities, main markets and 5.2 Regulations governing the operation competition 09 of earth stations, the deployment 1.3 In-orbit operations 18 of networks, the operation of 1.4 Management 24 electronic communications networks 1.5 Social and societal responsibility 24 and the provision of electronic communications services 120 5.3 Regulations governing content 123 CORPORATE GOVERNANCE 25 5.4 Regulations governing space 02 operations 125 2.1 Composition of the Board of Directors 26 5.5 U.S. export control requirements 2.2 Key management personnel 36 (regulations governing the activities 2.3 Information on compensation paid of the Group’s suppliers) 126 to Company Directors and Corporate 5.6 Other provisions applicable to the Officers 38 Group 127 2.4 Information concerning the elements of remuneration owed or attributed to Corporate Officers 43 FINANCIAL INFORMATION 129 2.5 Attendance fees paid to the Board 06 Members 58 6.1 Review of Eutelsat Communications’ financial position 130 2.6 Shareholding in the Company capital by administrative and management 6.2 Consolidated financial statements members 60 as of 30 June 2019 142 2.7 Corporate governance 61 6.3 Annual financial statements as of 30 June 2019 180
SUSTAINABLE DEVELOPMENT 67 03 OTHER 3.1 Business model, risks and CSR 07 INFORMATION 191 (Corporate Social Responsibility) policy 69 7.1 Legal information regarding the Group 192 3.2 Societal information 72 7.2 Other operational information 197 3.3 Environmental information 77 7.3 Principal shareholders 200 3.4 Social information 83 7.4 Organisational chart 202 3.5 Integrity and Ethics 88 7.5 Legal and arbitration proceedings 205 3.6 Other human rights actions 90 7.6 Research and development, patents 3.7 Indicators 91 and licenses 205 3.8 Methodology and scope 94 7.7 Important contracts 206 7.8 Related party transactions 207 RISK FACTORS 95 7.9 Significant changes in financial 04 and commercial position 207 4.1 Operational risks 96 7.10 Relations and conflicts of interest 4.2 Risks relating to changes in the within the administrative and satellite telecommunications market 98 management bodies 207 4.3 Risks relating to clients 100 7.11 Statutory Auditors 208 4.4 Regulatory Risks 101 7.12 Documents available 209 4.5 Financial risks 104 7.13 Responsible person 209 4.6 Internal control procedures and risk management policy 106
APPENDICES 211 CROSS-REFERENCE TABLES 225 GLOSSARY 229
Universal Registration Document 2018-19 EUTELSAT COMMUNICATIONS 01 LETTER FROM CHIEF EXECUTIVE OFFICER
LETTER FROM RODOLPHE BELMER, Chief Executive Officer
Further strong growth in cash flow generation which allows for an enhanced dividend policy
In the context of a challenging operating environment delivery solution. In Fixed Broadband, our Konnect Africa that continues to weigh on revenue growth, the effective activities are now up and running and our new distribution implementation of our financial strategy has enabled us once strategy in Europe, based in particular on a preferred again to meet or exceed all our other financial objectives. We partnerships programme, is starting to bear fruit. Finally, in have achieved a record EBITDA margin of 78.4% at constant Mobile Connectivity, we have carved a strong foothold in the currency, supported by the completion of our “LEAP 1” cost maritime segment with some major commercial wins with savings plan and the attainment of our Net Debt / EBITDA Marlink and Speedcast. target with a ratio of 2.98x which has continued to improve. Lastly, we have generated a further strong rise in discretionary In addition, we have continued our efforts to maximise free cash flow, up 10% at constant currency and excluding cash generation by leveraging all available elements of the impact of the EUTELSAT 25B disposal, on top of a 12% cash generation. The two successful bond issues during the increase. The 3-year objective of mid-single digit compound financial year will reduce interest by 34 million euros per year. annual growth was exceeded a year ahead of schedule. In line with previous years, we also continued to rationalise These achievements would of course not have been possible our asset portfolio with the disposal under favourable without the dedication, full commitment and talent of all the conditions of our interest in EUTELSAT 25B, a non-core asset, Group’s employees whom I wish to congratulate. for a consideration of 135 million euros. Furthermore the replacement of the HOTBIRD constellation ahead of time On the operational front, the past year was marked once with a significant reduction in costs, illustrates our ability to again by the resilience of our core Broadcast, which represents continue to optimise investments without compromising our 60% of revenues, supported by the rise in the channel deployment plan. Finally, after the completion of the “LEAP 1” count and improved HD penetration. In addition, several cost savings program – which generated 32 million euros in achievements in the year will support future performance cost savings exceeding the initial target, we are introducing a in Video, in particular the addition of several broadcasting follow-on “LEAP 2” program which targets further savings of platforms, the successful launch of the EUTELSAT 7C 20 to 25 million euros by FY 2021-22. satellite, bringing incremental capacity in Africa and the launch of Eutelsat CIRRUS, our turnkey hybrid satellite-OTT
02 Universal Registration Document 2018-19 EUTELSAT COMMUNICATIONS LETTER FROM CHIEF EXECUTIVE OFFICER
Core Broadcast business distinguished by its resilience and sound indicators
This allows us to set a new discretionary free cash flow target FY 2015-16 to 408 million euros in FY 2018-19 and will therefore of around 500 million euros in FY 2021-22. We are therefore in continue to grow. The second step in our strategy is to return to a position to enhance our shareholder remuneration policy by growth by seizing opportunities in a rapidly changing industry, maintaining our dividend at 1.27 euros per share and engaging particularly in Fixed Broadband and Mobile Connectivity, two on a share buyback program of at least 100 million euros by verticals with significant growth potential. Key milestones were the end of June 2022, while maintaining a sound financial set this year, particularly with the launch of Konnect Africa and structure with a Net debt / EBITDA ratio below 3.0x. the evolution in the European broadband distribution strategy: We continue to focus on executing our two-tier strategy. The first they will reach their full potential once the new resources are step is financial and involves making use of all available levers in orbit and in service, in particular the KONNECT and later to deliver outstanding cash generation performance. We have the KONNECT VHTS satellites. Considering this outlook and already achieved fair results on this front with discretionary free our solid financial situation, I have full confidence in Eutelsat’s cash flow which has already increased from 247 million euros in ability to continue its development in the years ahead.
Universal Registration Document 2018-19 EUTELSAT COMMUNICATIONS 03 LETTER FROM CHAIRMAN OF THE BOARD OF DIRECTORS
LETTER FROM DOMINIQUE D’HINNIN, Chairman of the Board of Directors
A business model combining financial performance with responsible development
The satellite services industry is going through a phase of Jean d'Arthuys, whose terms of office as directors will expire accelerated change resulting in slower growth in its traditional after the next General Meeting, as well as to Carole Piwnica markets but bringing with it new opportunities. In this context, who will also step down as a director. With the appointment Rodolphe Belmer and his teams have continued to deliver of Cynthia Gordon to be proposed at the next Annual an outstanding financial performance, particularly in terms General Meeting, the Board is pursuing its drive to renew of cash flow generation, while placing its membership and bring in more foreign the Group on track to seize opportunities nationals and women. Subject to adoption at for future development, especially in the next Annual General Meeting, the Board Connectivity. The shareholder remuneration will be composed of 50% women and 70% policy has once again been improved with independent members. the implementation of a share buyback A Group poised programme of at least 100 million euros to seize growth At the same time, Eutelsat has pursued its over three years, and while the dividend, opportunities efforts to promote responsible development currently yielding over 7%, has been on the corporate social and environmental maintained. Whilst remaining extremely levels, which will be essential to the success of attentive to safeguarding its financial indicators, the Group is its business over the long term. The Group's adherence to the also preparing for the future with the launch of new strategic principles of the UN Global Compact has been finalised and initiatives, such as promoting the Internet of Things and formalised and more weight is being given to Corporate Social enhancing its video services offering. A new innovation policy Responsibility (CSR) criteria in the executive compensation is also being implemented, based on bottom-up innovation policy. In the same context, the Board has focused on the involving all employees, combined with strengthened ties drive towards parity between female and male employees in between Eutelsat and its external environment, in particular the Group, notably supporting the establishment of a Diversity start-up companies in the space sector. Committee this year.
Against this backdrop, the Board has sought to harness its As a satellite operator, Eutelsat plays a key role in reducing collective experience and energy to serve shareholders, the digital divide, in particular by promoting access to the thereby contributing to the development and implementation Internet in areas not covered by terrestrial networks: with the of the Group's strategy, while continuously enhancing deployment of the Broadband business in Africa, and, in the corporate governance. I would like to express my gratitude to longer term, the increase in orbit resources dedicated to this all the members of the Board, in particular to Lord Birt and application, our impact in this area is set to rise sharply.
04 Universal Registration Document 2018-19 EUTELSAT COMMUNICATIONS CHAPTER 01 PRESENTATION OF EUTELSAT COMMUNICATIONS
01
1.1 Highlights of the financial year, outlook and key figures 06 Highlights 06 Financial outlook 07 Key figures 08
1.2 Group activities, main markets and competition 09 1.2.1 Group activities 09 1.2.2 Main markets and competition 11 1.2.3 Group strategy 15 1.2.4 Extra-Financial Group strategy 18
1.3 In-orbit operations 18 Operational review for Financial Year 2018-19 18 Satellite fleet 20
1.4 Management 24 Executive Committee 24
1.5 Social and societal responsibility 24
Universal05 EUTELSAT Registration COMMUNICATIONS Document 2018-19 Document EUTELSAT de COMMUNICATIONS référence 2016 - 17 05 01 Presentation of Eutelsat Communications Highlights of the financial year, outlook and key figures
1.1 HIGHLIGHTS OF THE FINANCIAL YEAR, OUTLOOK AND KEY FIGURES
Highlights
Financial year 2018-19 Main highlights of Financial Year 2018-19 are as follows: —— Konnect Africa operations up and running with direct 33 With the exception of topline, all financial objectives set at the distribution in place in the Democratic Republic of Congo and beginning of the year achieved or exceeded: extension to other countries planned in the near term; —— EBITDA margin of 78.4% at constant currency; —— multi-year, multi-transponder commercial wins in maritime Mobility with Speedcast and Marlink. —— Cash Capex of 323 million euros, well within our 400 million euros envelope; 33 Ongoing measures to maximise cash generation: —— Discretionary Free Cash Flow up 10% at constant currency —— two successful bond issuances reducing pre-tax cash interest and excluding the EUTELSAT 25B disposal, coming on top of by some 34 million euros per annum at run-rate and extending a 12% rise last year. 3-year objective of mid-single digit CAGR debt maturity; exceeded a year ahead of schedule; —— disposal of the interest in a non-core asset, EUTELSAT 25B for a —— Net debt / EBITDA target reached at 2.98x versus 3.01x a year consideration of 135 million euros; ago. —— ongoing Capex optimisation, with anticipated replacement of 33 Several operational achievements to underpin future performance: HOTBIRD constellation at significant cost reduction. —— resilience of core Broadcast, supported by progression in 33 Reduction of 74 million euros in FY 2018-19 tax burden following channel count and HD penetration; the change in French tax territoriality treatment. —— several new DTH platforms added during the year; 33 Completion of LEAP 1 cost-savings program with 32 million euros in Opex savings against 30 million euros target; follow-on “LEAP 2” —— successful launch of EUTELSAT 7C, bringing incremental program targeting further savings of 20 to 25 million euros by capacity to video markets in Africa; FY 2021-22. —— launch of Eutelsat CIRRUS hybrid satellite-OTT turnkey delivery 3 New Discretionary free cash flow target of around 500 million solution; 3 euros(1) in FY 2021-22. —— inflexion in European Broadband, with Preferred Partnership 3 Enhanced shareholder remuneration policy with a dividend Programme starting to bear fruit; 3 maintained at 1.27 euro per share and the launch of a share buyback program of at least 100 million euros by end-June 22.
Since 30 June 2019 Acquisition of minority interest in Broadpeak Unveiling of the ELO constellation project On 2 July 2019, Eutelsat acquired a circa 20% stake in video delivery dedicated to the Internet of Things solutions specialist, Broadpeak, for a total consideration of 10 million On 24 September 2019, Eutelsat unveiled its ELO constellation euros in shares and convertible bonds. project targeting Internet of Things (IoT) market. This constellation should number 25 nanosatellites in the next three years, with a demo Withdrawal from the C-Band Alliance satellite to be launched early 2020, and offer global IoT coverage enabling objects to transmit data, irrespective of their location. The On 3 September 2019, Eutelsat announced its withdrawal from the constellation’s first four operational satellites will be developed under C-Band Alliance (“CBA”), which has been formally notified to the CBA the supervision of Loft Orbital and Clyde Space. The partnership members. with IoT network operator and service provider Sigfox will enable As a reminder, the CBA is an organisation tasked with the clearing unparalleled integration between terrestrial and satellite networks. and repurposing of C-band spectrum to make a portion of this band available for 5G services in the United States. Successful launch of EUTELSAT 5 West B Eutelsat wishes to take a direct part in the discussions on C-band EUTELSAT 5 West B was successfully launched in October by clearing and repurposing. International Launch Services. EUTELSAT 5 West B will be positioned at 5° West to replace EUTELSAT 5 West A, assuring service continuity for over 300 TV channels broadcast from this position. EUTELSAT 5 West B will also host the EGNOS GEO-3 payload that will improve the performance of global navigation satellite systems in Europe.
(1) Based on a euro/dollar rate assumption of 1.14, excluding hedging impact and based on current perimeter and nominal deployment plan.
06 Universal Registration Document 2018-19 EUTELSAT COMMUNICATIONS Presentation of Eutelsat Communications 01 Highlights of the financial year, outlook and key figures
Financial outlook
Going into 2019-20, revenues will benefit from several tailwinds, The Group remains committed to maintaining a sound financial notably: structure to support its investment grade credit rating with a net 33 in Video, the entry into service of EUTELSAT 7C, bringing debt / EBITDA ratio below 3.0x. incremental capacity in Africa and the resilience of the core At the same time we will continue to serve a stable to progressive Broadcast Direct-to-Home business; dividend, and we will also repurchase at least 100 million euros of 33 in Fixed Broadband, the ramp-up of the Konnect Africa operations our shares by end-June 2022 commencing in the second half of and the benefits of the PPP (Preferred Partnership Programme) in FY 2019-20(5). Europe; Financial targets are based on the nominal deployment plan outlined 33 in Mobile connectivity, the benefit of contract wins in Maritime on section 1.3. and the full-year impact of the UnicomAirNet contract on These objectives are based inter alia on the following assumptions: EUTELSAT 172B; (i) launch and successful entry into operation of the satellites in 33 in Government Services, the entry into service of the EGNOS course of construction in accordance with the timetable envisaged payload on EUTELSAT 5 West B. by the Group, (ii) maintaining of the existing operating capacity On the other hand, a delay in the launch of EUTELSAT QUANTUM of the Group’s fleet, (iii) no incidents to affect any of the satellites in (now expected in the third quarter of calendar year 2020) means orbit, (iv) continuation of a policy of controlling operating costs and this satellite will not contribute to revenues in the coming year, while their evolution, (v) maintaining of the general conditions of the space the topline of Professional Video and Fixed Data will remain under insurance and space industry market. pressure. The forward-looking objectives, statements and information In this context, we expect revenues for the Operating Verticals of summarised above are based inter alia on the data, assumptions between 1,280 million euros and 1,320 million euros in FY 2019-20(2). and estimates mentioned earlier and are considered by Eutelsat Given the elements listed above, the revenue profile will be back-end Communications to be reasonable as of the date of this document. loaded. The reader is cautioned that these forward-looking statements are Future revenues will benefit from the entry into service of EUTELSAT dependent on circumstances or facts that are to occur in the future. QUANTUM, KONNECT and KONNECT VHTS, with an improving trend These statements are not historical data and must not be interpreted in the outer years. as guarantees that the facts and data cited will occur or that the objectives will be attained. By their nature, these data, assumptions and Cash Capex(3) will continue to be contained at an average of estimates, as well as all elements taken into consideration to determine 400 million euros per annum for the period July 2019 to June 2022. these forward-looking objectives, statements and information, could The Group continues to leverage all measures at its disposal to prove to be wrong or may not materialise and may change or be maximise cash generation, which will benefit from the full impact modified due to uncertainties related to the economic, financial, of the achievements of the past year, notably in terms of debt competitive and regulatory environment in particular. refinancing and reduction of the tax expense. The LEAP 1 programme Additionally, some of these data, assumptions and estimates come which was completed in June 2019 with opex savings of 32 million from or are based in full or in part on assessments or decisions of the euros will be followed with a new plan, LEAP 2, aimed at generating a corporate bodies of Eutelsat Communications, which could change or further 20 to 25 million euros in savings by June 2022. be modified in the future. Furthermore, the materialisation of certain In this context we are setting a new objective of delivering risks described in the Chapter “Principal Risks” below could have a discretionary free cash flow of circa 500 million euros(4) in FY 2021-22. negative impact on the Group’s business and on the achievement of the forward-looking objectives, statements and information cited above.
(2) Based on euro/dollar U.S. rate of 1.14 and current perimeter. (3) Including capital expenditure and payments under existing export credit facilities and from lease liabilities. (4) Based on a euro/dollar U.S. rate assumption of 1.14, excluding hedging impact and based on current perimeter. (5) Subject to the renewal of the resolution relating to share buybacks at the Annual General Meetings.
Universal Registration Document 2018-19 EUTELSAT COMMUNICATIONS 07 01 Presentation of Eutelsat Communications Highlights of the financial year, outlook and key figures
Key figures Preliminary comments: i) EBITDA and Discretionary free cash flow are alternative performance indicators which are defined in Chapter 6 of this document; ii) Data at 30 June 2018 have been restated to reflect the retrospective adoption of IFRS 15 on 1 July 2018.
Revenue for the operating EBITDA Group share Discretionary verticals (€m)(1) (€m)(3) of net income (€m) free cash flow (€m)(4)